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Europe Needs Tsar To Slash Output, Thwart National Bailouts

“Capacity cuts of 24 per cent are required if utilisation is to reach rates enjoyed in the U.S. where 21 per cent was removed”

Europe’s chronically loss-making car industry needs a “car Tsar” to force closure of a quarter of its capacity, according to a report from investment bank Credit Suisse. If this doesn’t happen, Europe’s car makers will be kept afloat by national governments and long-needed reform will be put off again.

Credit Suisse nominates former Ford Chief Financial Officer and CEO of Ford Europe Lewis Booth to take on this poisoned chalice. There is no word so far whether Booth likes this idea.

Credit Suisse said Peugeot-Citroen of France is the most vulnerable of European mass car manufacturers, saying $5.8 billion of cost-cutting measures have so far failed to halt cash outflows, as sales sink and discounting costs rocket. (The report was published before the Aulnay plant closure news).

Peugeot is in such deep trouble, Credit Suisse believes the French government may be forced to intervene to save it, if a car Tsar isn’t appointed to coordinate closures.

The Tsar would be appointed, and the programme financed, by the European Union.

“The E.U needs to accept responsibility for the restructuring and establish an automotive task force which can coordinate capacity reductions among European manufacturers and which is capable of removing the first-move disadvantage that currently keeps automakers from committing funds to plant closures in a politically uncertain environment,” the report said.

If this doesn’t happen, Credit Suisse believes national governments will be forced to save their national champions, like Fiat of Italy, and this would perpetuate Europe’s inefficient car industry.

Big bang
“The French government may seek to assist Peugeot, in the absence of a co-ordinated European approach. In our opinion, such an intervention would lead to a “Big Bang” where other governments look to support their (leading manufacturers). These actions are liable to serve domestic agendas at a cost to the broader industry,” the report said.

Credit Suisse said 60 per cent of new cars in Europe are sold by brands making losses.

“Since 2002, $22 billion has been removed from the value of Fiat, Peugeot-Citroen and Renault (of France). The current predicament is not solely the result of weaker end markets, but weak strategies leading to poor returns; today’s strategies seem equally questionable,” the report said.

“We believe the appointment of a car Tsar is crucial to a coordinated plan. Capacity cuts of 24 per cent are required at Europe’s mass (manufacturers) if utilization is to reach rates enjoyed in the U.S. where 21 per cent was removed,” the report said.

Credit Suisse said the issue is coming to the fore because it expects a more severe sales downturn for 2012 than originally expected and only a muted recovery in 2013.

Neil Winton – July 15, 2012

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