Europe’s Car Industry
The recent turmoil surrounding the Rover Group
and Ford in the UK has highlighted the precarious state of the
automotive industry throughout Europe.
The market for cars in Western Europe has grown from 13.4m in
1997 to 15m by 1999. At the same time, the market in North America
(a critical export market for specialist brands such as Mercedes,
Volvo, BMW, and Porsche) has been booming.
So why is the European
industry in crisis?
A key problem is over-capacity. Despite strong market growth,
production in Western Europe has stagnated at about 14.4m cars
Yet estimated installed capacity - the capability to produce
vehicles - has grown to over 21m cars per annum.
That means Europe can produce over 6m more cars than can be sold
- equivalent to nine plants of the size of Long Bridge.
The problem is the high investment costs in the motor industry:
this means that to make profits, manufacturers have to run plants
at near capacity.
Recent investments in the UK have
Over-capacity often results
in over-production, with the ultimate effect of downward pressure
If the block exemption for car makers - which
allows them to have chains of exclusive dealers - is removed
in 2002, as seems increasingly likely, then prices for new cars
will fall further.
Aggregate over-capacity is not spread evenly
across manufacturers, countries, or plants.
There are counterveiling pressures, not least
the need to be geographically near the market in order to improve
responsiveness to changing demands, but these may not be sufficient
to sustain manufacturing in the European Union in its current
For the UK automotive industry, these are pressing
UK manufacturers have been strongly export-orientated,
with much of the growth in production during the 1990s attributable
to exports to the European Union.
Investments by Nissan, Honda, and then Toyota
have been particularly aimed at winning export markets - with
up to 80% of output going abroad
This despite the fact that the Micra is the
highest volume model produced at Sunderland, and the plant has
the highest output per head in Europe