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‘Day of reckoning’ looms for European auto makers, Marchionne warns

File photo of Chrysler Group LLC chairman and CEO Sergio Marchionne.

REBECCA COOK/REUTERS

A "day of reckoning" must come soon for the auto industry in Europe, where mass market companies racked up losses estimated at €4-billion to €5-billion in 2012, Chrysler Group LLC chief executive officer Sergio Marchionne says.

"No industry can continue to fund losses of that magnitude," Mr. Marchionne, who is also CEO of Italy-based Fiat SpA, said Monday. "The machine is broken."

The situation in Europe is similar to that faced by car companies in North America in 2008 as Chrysler LLC and General Motors Co. slid into bankruptcy protection, he told reporters at the North American International Auto Show. "It's very, very difficult to look at Europe with any level of serenity."

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The combination of the economic and sovereign debt crises affecting Europe has sent vehicle sales into a downturn so steep that sales in some countries, which once surpassed those of Canada by large margins, have now fallen below Canadian levels. Austerity programs put in place by governments to reduce deficits and debts have aggravated the economic downturn.

Mr. Marchionne renewed his call for auto makers and governments to work together to reduce capacity by closing plants.

Some companies, including Fiat, have already closed some plants, while others such as Ford Motor Co., General Motors Co. and PSA Peugeot have announced plans to do so.

But many companies are playing what he called a game of chicken, waiting for rivals to shut plants and cut jobs in order to address the oversupply of vehicles that has caused the billions of euros in losses.

"Every European car maker opens up the press in the morning hoping that somebody's announced a plant closure," he said.

But governments need to encourage a restructuring of the industry, he noted, despite the pain it will inflict on their economies. He said he understands their traditional view that auto plants must be kept open, "but the economic reality is otherwise."

The devastation the European crisis has caused Fiat underlines the importance of the Italian auto maker of Chrysler, which it now controls after picking up the No. 3 Detroit auto maker in 2009 as Chrysler's last hope for survival.

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Chrysler has since recovered to the point where the 2.4 million vehicles it sold worldwide last year represented about 60 per cent of the 4.1 million to 4.2 million vehicles Fiat delivered globally.

Mr. Marchionne had one nugget of good news for Canada and the Canadian Auto Workers union, saying that the company's assembly plant in Windsor, Ont., will continue making the company's minivans and their replacements. Chrysler is in the midst of assessing the two minivans made in Windsor and how they will fit the minivan market later in the decade.

He said one of either the Chrysler Town and Country or Dodge Caravan will no longer have sliding doors, but will still fit what he called the "people carrier" concept.

Chrysler has added third shifts of workers at several of its North American plants to help supply the increased demand that took overall U.S. industry sales to about 14.5 million vehicles last year.

The auto maker has enough assembly capacity for a market up to 15.5 million vehicles, Mr. Marchionne said. Some analysts are forecasting that U.S. sales will hit the 15.5 million level by 2014. Chrysler's current plant, which it introduced in 2009, forecast that its sales would hit 2.6 million vehicles this year and rise to 2.8 million by 2015.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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