European Car Market Still a Mess, Warns Marchionne

Fiat Chrysler CEO also raises concerns about Toledo Jeep plant.

by on Oct.07, 2014

New emissions standards, in general, are “one of the toughest issues we face,” said Sergio Marchionne, during the Paris Motor Show.

The large crowds pouring in for this year’s Paris Motor Show have given hope to industry planners waiting to see if the long European automotive recession has finally come to an end. But despite recent signs of a sales upturn, not everyone is convinced the world’s third-largest car market is finally in recovery mode.

“I’ve never been a firm believer in the recovery of Europe,” said Fiat Chrysler Automobile CEO Sergio Marchionne, during a meeting with reporters. “There are still some problems that plague us in getting this machine going again.”

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Like a number of other industry leaders, Marchionne’s confidence appears to have been further shaken by last week’s announcement that Ford would not see the turnaround it had expected in Europe this year. That revelation triggered a sharp run on the maker’s stock, which fell nearly 20% in a matter of days.

“All of us are still reading from the Ford announcement,” said Marchionne.

The larger of the Detroit makers blamed a variety of factors for its problems, but pointed specifically to Russia, where sales are expected to be off by a full third for all of 2014, in large part due to the impact of sanctions related to Russia’s support for Ukranian rebels.

As for Marchionne, he said he is “incredible hopeful” the (Russian situation) “will sort itself out,” though he doesn’t expect that to happen in the near-term.

The European recession has been the longest and deepest the Continent has experienced in decades, and fundamental issues, such as high unemployment and sharp budget cutting in countries from Greece to Ireland, have delayed a rebound, analysts warn. Marchionne said he believes “the worst is over,” but doesn’t anticipate a quick recovery, forecasting that sales in 2015 will likely be little better than this year.

Making matters worse, he noted that European politicians and regulators have largely avoided taking action to correct underlying problems that worsened the auto industry’s slump. Strict employment laws, for example, have made it difficult to trim excess capacity. Only a few automakers, including Ford, General Motors and Fiat, have moved to close plants, and that has fallen far short of what’s needed, Marchionne has repeatedly lamented.

Suggesting that the Fiat side of FCA has had to look for its own solution, he said the maker has taken steps to refocus its European plants, where necessary, on exports, rather than leaving them sitting idle. As a result, “We do not have any unexploited capacity that will not find a home by 2018,” said Marchionne.

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Marchionne meanwhile echoed concerns raised by other senior executives gathered for the Paris Motor Show about increasingly stringent fuel economy standards. Europe has enacted sharp cuts in CO2 emissions to a mere 95 grams per kilometer – roughly equal to America’s 54.5 mpg fuel economy standard – by 2020. But some regulators are calling for a further reduction to just 65 g/km, something industry leaders say would be extremely difficult to meet.

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It would require a major shift to plug-in hybrids and pure battery-electric vehicles, something “we know how to do,” said Marchionne. But he quickly added that “if you think electrification, considering its limitations, will replace combustion technology, it won’t.” He warned that consumers aren’t moving to battery power and would be even less likely as costs rise to meet new emissions and fuel economy standards.

While Europe may have some of the strictest environmental laws on the books, the U.S. is also pushing makers to clean up their act. They’re responding in a variety of ways, including the use of more battery-based technology, but also by “lightweighting” vehicles such as the new, aluminum-intensive Ford F-150.

(To see more about the UAW’s plans for organizing the South, Click Here.)

The Chrysler side of FCA is reportedly weighing the possibility of a switch to aluminum with the next generation Wrangler SUV. But Marchionne cautioned that such a switch would be costly and complicated. And it might require the maker to rethink where the popular ute is built because retooling the existing Jeep plant in Toledo, Ohio, would be too expensive.

Whether the Wrangler will switch to aluminum remains to be seen but it is expected to see a significant increase in mileage when the next version is introduced.

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