Europe's auto industry will continue to struggle because it has not cut its production capacity, Fiat SpA (FIA.MI) Chief Executive Sergio Marchionne said in comments to Reuters TV.

If European demand for autos drops 5 to 10 percent then given the operating leverage of suppliers a lot of people are going to bleed, he said.

Europe will continue to capacity has been taken out, he said.

On Germany, he said this is one market that is going to drop substantially as incentives for car sales end.