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backGLOBALtalk April, 2012

Europe's Auto Industry Is Crashing, But Layoffs Are Out Of The Question

In France, new vehicle registrations have been plunging. Already down 17.8% in December and 20.7% in January compared to prior year, they sank 20.2% in February.

Year to date, the results were even worse than they appear. With 43 selling days in 2012, against 41 in 2011, sales per selling day were down 24.2%.

French automakers suffered the most. In February, PSA Peugeot Citroën was down 29.2% and Renault 28.5%.

Last year, the prime à la casse—the cash-for-clunkers à la Française—was doping sales through March 31, 2011. The CCFA (Comité des Constructeurs Français d'Automobile) expects the nosedive to accelerate next month. It also estimates that sales for the entire year will decline by 7-10%, which may be a tad optimistic, given the headwinds France faces.

Layoffs and plant closings will be tough to undertake during the election, as they become highly politicized. Labor Minister Xavier Bertrand issued a stern warning to Philippe Varin, CEO of PSA; layoffs as part of its alliance with GM would be out of the question. Already in November, Varin was summoned by President Nicolas Sarkozy and told to reconsider laying off 6,800 workers.

And layoffs might even be tougher to undertake after the election if socialist François Hollande wins. Last quarter, the French economy lost 31,900 jobs, the first quarterly job losses in two years, and unemployment rose to 9.8%. These trends will put immense pressure on Hollande to do something visible. And for auto manufacturers, it will mean even greater difficulties.

The German auto industry, which is far larger than its French counterpart and plays a disproportionate role in the German economy, is still basking in last year’s glow. Audi, BMW, Daimler, Porsche, and VW just announced record worldwide sales and profits for 2011, and record bonuses for their beaming employees. GM’s subsidiary Opel and Ford’s subsidiary Ford-Werke, however, were struggling in 2011. And now the rest of the industry is getting hit, too. Registrations in January were down only 0.4% due to massive fleet sales. But February was a nightmare: down 30%.

It's not helping that gas prices are at an all-time record high—$8 a gallon. And for months, manufacturers have been trying to boost car sales with rebates. Even Porsche jumped into the fray. Boxsters for April delivery were offered at a discount of 14% by online dealer www.meinauto.de—possibly the deepest discount ever for a Porsche. At the other end of the spectrum, Opel Astras were offered “up to” 29.9% off retail price. Nosebleed discounts (or rebates in the US), crashing volumes, billowing inventories, and overcapacity are the bane of the car business, and if they occur at the same time, the industry gets into very serious trouble and needs to restructure to reduce capacity.

But layoffs aren’t easy in Germany. Chancellor Angela Merkel got personally involved in protecting Opel factories during the financial crisis and tried to broker the sale of Opel to keep GM from shutting it down. While the deal fell apart, the restructuring agreement survived and prevents GM from closing any plants until 2014. This is the desperate backdrop for the alliance between GM and PSA, a mind-boggling non sequitur: GM lost $15.6 billion in its European operations since 1999 and had to dump or shut down a whole slew of brands and alliances during its bankruptcy—only to now drive down that same cursed road again, but this time with US taxpayer money.

There were other signs of a kink in Germany’s growth trend: tax revenues in January declined for the first time in 17 months. Experts at the ministry of Finance consider it significant that the trend of growing tax revenues was broken and cite as primary reason the economic slowdown late last year. Among the still growing taxes: sales taxes were up a very disappointing 1.3%, after rising 5.5% on average over the last 12 months; and tobacco taxes jumped by 12.2%.

Yet, the German unemployment rate had dropped to a two-decade low and was touted by politicians in the governing coalition, from Merkel on down. And the media hyperventilated about Germany's superior economic model. But a recreational dive into the Federal Labor Agency’s monthly report for January reveals another, darker, story. Read.... German Unemployment Obfuscation.

On the other side of the Planet, after an endless stream of horrid reports on the tragedy of the March 11 earthquake and tsunami, and the subsequent nuclear catastrophe in Fukushima, there was something ... lighter. And cynical. And in a deeper sense, truthful.... Nuclear Contamination As Seen By Japanese Humor (mostly visuals).

Source: BusinessInsider.com - GAI

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