Europe's carmakers, desperate to beat the overcapacity that hurts profits and leaves them vulnerable to overseas competitors, want the region's leaders to accept they must close plants and make politically toxic job cuts to survive.

European car industry association ACEA discussed how to intensify its lobbying efforts with the European Commission and come up with a pan-European fix for excess output at a meeting on the sidelines of the Geneva Auto Show on Wednesday.

Sales are withering in a region which analysts and auto industry executives estimate has at least 20 percent too much carmaking capacity.

We cannot continue endlessly (to) deal with automotive issues at the national level, said ACEA Secretary General Ivan Hodac in an interview at the Geneva Auto Show. We need an EU-wide solution. But it is not easy.


An industry source briefed on the ACEA talks told Reuters that European automakers, bruised by brutal price competition in a market soured by austerity measures, want political acceptance for plant closures rather than additional funding - which is unlikely to be forthcoming from cash-strapped governments.

ACEA Chairman and Fiat chief executive Sergio Marchionne will discuss future trade agreements at a March 20 meeting with the EU trade commissioner, officials said in Geneva.

Another source said ACEA was already working on a proposal to submit to the EU, though this would not be ready by the meeting.

Marchionne said ACEA members had discussed overcapacity at Wednesday's meeting. We need to look at the entire overcapacity picture, he added.


TAKE A LOOK Geneva Auto Show: [ID:nL5E8E12HQ]





Chief Executive Philippe Varin said he would support EU action to tackle the problem.

France's Peugeot has just sealed a deal with U.S. automaker General Motors targeting cost savings through shared production that it hopes will help accelerate overseas growth.

The tie-up highlights the overcapacity problem as well as stoking workers' fears over mass job losses.

GM said on Tuesday that the two car makers would make their own decisions on sites, but the alliance would not cause any plants to close.

The company should be able to present a plan for its European Opel/Vauxhall operations in two to three months, Europe head Karl-Friedrich Stracke said at the auto show.

Varin, who formerly headed British steelmaker Corus, said Brussels should draw lessons from earlier successful intervention in that sector.

He also called for the same political back-up U.S. carmakers received during the downturn.

The political side should support its industry when it has to restructure, Varin said. If you look at what happened in the U.S. during the crisis, there was very strong support from the U.S. government.

U.S. carmakers shuttered plants and laid off workers when the crisis hit. Detroit's Big Three automakers - GM, Ford and Chrysler, now partnered with Fiat, closed 13 plants between 2008 and 2012.

The process was painful but the industry was left in better shape. IHS Automotive estimates U.S. capacity utilisation will reach 82 percent in 2012, up from 66 percent in 2008.

In Europe, with 241 plants in 27 countries, only three factories have closed or are slated to close over the same period. Capacity utilisation is seen at 65 percent this year, figures from IMC-Auto show.

Instead of helping carmakers restructure, European governments bailed them out with billions of euros in loans and scrapping incentives that delayed reform and which has thrown overcapacity into stark relief.

But any cross-border restructuring would face fierce opposition from national governments as politicians jealously guard manufacturing jobs.

Adding to the manufacturers' woes, a free trade agreement with South Korea introduced last July boosted South Korean automakers' sales in the region.

South Korea exported 438,767 vehicles to the EU and imported 78,762 vehicles from the region in 2011, government data shows.

If we continue opening borders without the possibility of having access to the other country's market it's a slippery slope, said Hodac, adding ACEA would only support a trade agreement with India if it eliminated its import tariffs.

UBS analyst Philippe Houchois said: The EU traditionally has been a watchdog making sure that member states don't give unfair aid to struggling companies ... there could be an EU policy that acknowledges that downsizing would benefit the industry long term.

Another analyst who asked not to be identified said: Marchionne made the comparison with the steel industry. What would help is EU-wide relaxing rules for firing workers, making it less expensive.

It's an EU-level problem, because the EU put on a lot of C02 limits which increase costs and the EU negotiates trade agreements with Asian countries.

Not all the ACEA's members agree with the lobby group's call to arms, however.

I'm not at all calling for government aid, said Bernhard Mattes, head of Ford's German operations.

A restructuring of companies must be carried out by the companies, Mattes said.

Carlos Ghosn, chief executive of French carmaker Renault and its Japanese alliance partner Nissan Motor <7201.T>, predicted the first European restructuring moves could open the floodgates to a rash of plant closures.

At the moment, all European carmakers have capacity problems, Ghosn said.

But the day somebody's able to restructure heavily in Europe, it's going to force all car makers to do it.


The European auto industry has few tools at EU level that can help it deal with overcapacity and while ACEA may want a concerted approach, national governments will be loath to cede control of such a key political issue.

British business secretary Vince Cable was at the auto show as part of a bid to save jobs in the struggling sector, his presence highlighting the sensitivity of threatened plant closures, which often mean the loss of thousands of jobs.

Britain got some good news, with Japan's Nissan Motor Co. <7201.T> pledging to build a new compact car in Sunderland, northeast England, but Cable was also due to meet GM bosses to try to persuade them not to close the Vauxhall plant in Ellesmere Port in northwest England.

UBS's Houchois noted there was room for conflict between the EU and national governments on the issue.

Having said that, we've seen a change in governments willingness and ability to take action compared to before. Governments are less committed to supporting industry.

The second analyst agreed: If the EU can do it for Greece, they can do it for the car industry, the analyst said. The main point is that they are starting to talk about it.

Hodac also said he had noted that the attitude in Brussels towards the auto industry was changing.

I am noticing more of a willingness to listen, he said.

(Additional reporting by Jan Schwartz, Andreas Cremer and Hyunjoo Jin; Writing by Helen Massy-Beresford; Editing by Chris Wickham and David Cowell)