A fight among European car makers

An excess capacity at European car makers is causing concerns for smaller manufacturers in the region. By various estimates, there will be about two million over capacity of vehicles in 2012. This is a huge problem for smaller car manufacturers such as Italy’s Fiat, PSA Peugeot Citroen and France’s Renault which are fighting to close marginal manufacturing plants in Europe. However, this is not a problem for larger manufacturers such as BMW, VW and Daimler’s Mercedes-Benz which are selling more cars outside Europe mainly in the U.S. and China. Larger manufacturers who are running at almost full capacity are resisting closure of marginal plants.

When a company can close down a factory that is making a marginal profit or no profit at all, why smaller companies are fighting with the European Union to close marginal factories? It is because they are concerned about the political ramification of such closures. Politicians in individual countries are reluctant to close even a marginal factory due to very fragile job markets. On the other hand, smaller car makers are just entering the lucrative markets such as the U.S. and China and don’t enjoy the same sales volumes enjoyed by the big car makers. So, the fight to close factories in Europe continues.

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