Plant Utilization in Europe: Improving, But. . .

Manufacturing at Audi Ingolstadt (Image: Audi)

According to LMC Automotive, the capacity utilization rate in European factories is 71%. While this might strike some people in U.S. operations as underutilization (after all, 71% utilization means that 29% is going unutilized), according to LMC’s James Norris, senior analyst, the European OEMs have actually shown a marked improvement given that in 2009 the utilization was 58%.

As Norris writes, “While the 13 percentage-point increase over 10 years may appear relatively modest, after factoring in the obstacles to workforce reduction—such as political sensitivities and the influence of trade unions—it is quite impressive.”

Which just goes to show you how conditions aren’t necessarily uniform on a global basis, no matter how often people talk about the “global industry.”

Norris anticipates the potential of reaching an overall capacity utilization of 75% by 2026. This would be a good thing for the European OEMs as that figure, he notes, “has long been regarded by the industry as the profit threshold.”

Obviously, profitability is important to any OEM. But it is particularly key in terms of what is going on in Europe, where there is a tremendous investment in the “future of mobility” by the companies. He cites a figure from the European Automobile Manufacturers’ Association that has it that the companies are spending €57.4 billion per year on this endeavor.

If it took 10 years to get a 13 percentage point increase, then perhaps getting a bump of four points over the next six years should be achievable—although this might be a little like dieting, with the last few pounds being tougher to lose than the first 15.