Monday, October 29, 2012

Fiat CEO on Global Auto Capacity Glut

We may sell around 15 million cars in the U.S. next year.  That's down from a peak of about 18 million units a few years ago.

There's one huge remaining problem, however. Global auto making overcapacity is already greatly in excess of the number of cars that will be sold here in the U.S. for several more years. In other words, we wouldn't have to make a single car in the U.S. and auto overcapacity would still remain a global concern.

Fiat CEO Prods Governments on Auto Glut says this:

"Governments should take a greater role in eliminating a glut in global auto-making capacity, Fiat Chief Executive Sergio Marchionne said . . . citing both Europe's declining demand and China's promising, but fragmented, auto industry. . . .

Mr. Marchionne renewed calls for the European Union to lead a massive restructuring of Europe's problem-plagued auto industry. He also said a Chinese auto maker could become a top international player if Beijing streamlined an industry with a large number of competitors and its own worries about overcapacity, despite growing demand.

Mr. Marchionne, who also serves as chairman and chief executive of Fiat's Chrysler Group LLC unit, said world-wide capacity is around 100 million vehicles a year, or 20 million to 25 million more units than the market can "realistically digest."

"The pain is felt by auto makers in mature markets most of all," he added. . . .

Fiat, which last year closed an assembly plant in Sicily, plans to boost the production capacity of its plant in Changsha, in China's central Hunan province, to between 250,000 and 300,000 vehicles a year from an initial capacity of 140,000 vehicles. The company recently launched its Viaggio model in China—the first car Fiat has made in China since 2007.

Mr. Marchionne said Fiat's objective in extending production to places like China is to make sure that it had the right production skills in the right place to satisfy demand. "Don't connect the two because the real issue in Europe is demand" and not to expand production at Europe's expense, he said.

"There is a demand-supply imbalance in Europe, and that needs to be addressed, which has been the reason why I have advocated European Union intervention, . . . Somebody needs to control the process whereby this gets done before we end up creating nationalistic responses that are ultimately going to run right in the face of rational economic choices." . . .

Overall car sales in Europe in 2012 are expected to be around 12.5 million vehicles, the lowest level since 1993, according to Ivan Hodac, secretary-general of the European Automobile Manufacturers' Association. . . .

China's auto industry is facing problems including a slowing Chinese economy and a surplus of car factories. However, car sales are expected to grow at a pace equal or greater to China's economic growth in the coming years, Dong Yang, general secretary of the China Association of Automobile Manufacturers, said Sunday. The government is targeting annual economic growth of 7% in the period of 2011-2015.

Mr. Marchionne said that after a round of consolidation by mass-market car makers, five or six global auto makers would be left standing. "I think you want at least one of those players to be Chinese," he said."


If indeed four or five other than Chinese global auto makers are "left standing," that means GM, Ford, Chrysler, Toyota, Honda, Nissan, Volkswagen, Mercedes, BMW and so on won't all make the cut.

In fact, probably one or two of the three big U.S. players won't be "left standing," assuming the Fiat CEO is right.

So is GM safely in the "saved" camp, as President Obama likes to say? Well, I'll bet on Ford as a survivor for sure.

Assuming there's perhaps room for one additional U.S. competitor, that leaves GM or Chrysler/Fiat, and my guess is that Mr. Marchionne is betting on Chrysler.

To repeat, is GM now officially and finally able to be counted among the "saved?" Of course not.

Thanks. Bob.

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