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"Estimates suggest that overcapacity in the region is around 20% and that could amount to as many as 10 plants or three million units of unneeded vehicle manufacturing capacity," Leggett notes. "It is looking like an adjustment to bring manufacturing capacity more into line with real market demand is unavoidable as pressures on profitability mount."
As the market declines in 2012-and it is still well under pre-2008 levels-the pressures on Europe's volume carmakers will inevitably grow, according to industry analysts. The recently announced alliance between General Motors and PSA Peugeot Citroen is a sign of how the financial pressures are building and how serious they are.
"Adjusting model-mix and looking at shift patterns or variable costs can only take you so far and is a typical reaction to cyclical fluctuations in demand," adds Leggett. "But given the significant step-down to the West European car market since 2007 and the limited prospects for demand recovery, carmakers will likely conclude, however reluctantly, that they have to take some fixed capacity out altogether to remove expensive overhead. But where could the axe eventually fall? That's the big question."
Data issued by LMC Automotive shows that the West European car market LMC Automotive shows that the West European car market declined by 11.4% in February and the automotive forecasting firm projects that the West European car market will fall by 6.1% to just over 12 million units in 2012.