PRODUCTION: India, China, Europe Face Dire Auto Production Cuts
Thursday, June 21st, 2012
India has become the latest nation to be hit by slowing car sales, blamed primarily on rising fuel prices and a slowing economy. Most manufacturers in India have begun to cut production with longer weekends and holidays in order to balance inventories. Manufacturers are also said to be looking harder at export markets.
According to reports, gasoline-powered vehicles are the hardest hit in India's dwindling sales because of rising gasoline prices. At this point, 47% of new car sales in India are diesel powered, nearly the same as Europe. The Indian Automobile Association says that just two years ago only 25% of passenger car sales were diesel-powered.
While India's automakers are cutting production in response to slowing sales, that hasn't been the case in China where after more than a year of slowing sales, automakers continue to operate assembly operations at or near full capacity. Dealer inventories are high and the competition has led to price wars. While fuel prices are high, although recently reduced by the Chinese government that controls fuel prices, the diesel equation is not a factor. Chinese buy mainly gasoline-powered cars, emulating Americans who have also snubbed their noses at clean diesel technology.
Europe finds itself in perhaps the worst situation where sales have slowed over the last two years but automakers find themselves almost helpless in dealing with the slowdown. While several auto manufacturers, including Fiat, PSA Peugeot, Renault and Opel have excess capacity that needs to be shuttered, European labor unions and governments effectively combat the efforts for European auto manufacturers to close down over-capacity and cut their work forces. The result is unprofitable manufacturing plants that tax the earnings and growth of several European automakers.
German luxury car makers have been able to avoid the situation because demand for their luxury cars remains high and the profits on those vehicles are high as well. Another winner in the European market is Hyundai, a relative newcomer to Europe that assembles its vehicles in the Czech Republic where labor rates are low and its models have become popular sellers.
Nevertheless, neither India, China nor Europe can sustain their market situations without making radical changes to the way they make, sell and deliver passenger cars. Manufacturing has to become better balanced with demand in these markets and until it does, one manufacturer after the other will begin to fall into the syndrome that once was General Motors.
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