Europe’s Auto Industry Faces Years of Overcapacity

Carmakers in Europe aren't likely to return to 2007's peak capacity utilization of 85% until at least 2020, says Automotive News Europe, citing analysts' estimates.

Observers expect the industry to reach 70% utilization this year and perhaps 80% the minimum needed to operate profitably by 2016. But some doubt the industry will ever average 85% again unless it closes more factories.

Ford Motor Co. figures the industry currently has 20 million units of capacity for about 14 million of annual sales. The gap equals the annual output of roughly 10 assembly plants.

But closing that many facilities isn't politically feasible. One analyst tells the online newspaper more likely scenario is that four or five assembly plants will be shuttered over the next five years.

Revived car sales would help boost capacity utilization. But analysts warn that sales alone won't be enough to solve the problem. ANE predicts carmakers will continue their "starvation diet" of continued cost cutting, while trying to improve production economics by trying to raise local output of higher-value models.