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European carmakers to get serious at Geneva show

Published on NewsOK Modified: March 3, 2013 at 5:40 am •  Published: March 3, 2013

The high costs of labor and the overcapacity at factories both conspire to eat into profits — which could otherwise be re-invested in innovation and technology to capture new customers.

The only way forward, analysts say, is to become leaner by tackling uncompetitive labor regulations and closing factories.

This may be harder in some countries than others. In recent months, for instance, the French government and unions have fought plans by PSA Peugeot Citroen to trim its excess capacity by closing its Aulnay plant and eliminate 8,000 jobs.

"The principles behind egalite and fraternite and all the rest are great if you can afford it," said Newton of the generous French contracts that also hamper other European manufacturers.

"The problem is France really can't afford it when it's competing with people who basically make better products at a cheaper price."

Volkswagen, which is expected to unveil a new GTI model in Geneva, has benefited from Germany's more flexible labor laws, which have helped it keep costs lower and continually push innovation. In addition to the rise in profits, the carmaker saw sales jump 21 percent last year.

Carlos Ghosn, head of the Renault-Nissan alliance, has hailed a new partnership with Mercedes as a way to address overcapacity, but said it all comes back to negotiating more flexible terms with workers. The carmaker is planning to eliminate 7,500 jobs in France over the next three years, mostly through attrition.

"It's a win-win relationship, which allows us to increase the utilization rate at Renault's factories, while keeping our partners from investing in new production capacity," he told Le Monde in a recent interview.

Ghosn and his competitor CEO Philippe Varin of PSA will be using Geneva to persuade the press and their customers that 2013 represents a new beginning.

But as Laurent Petizon, an analyst with Alix Partners, stresses, if manufacturers are going to make a new start once the current economic and industrial downturns begin to ease, they have to learn the lessons of overcapacity and inflexibility.

"The crisis is an opportunity to reform the industry once and for all," he said. "There will be growth, maybe in two years. But to capture it, you have to be healthy!"