Will Europe's Changes Impact American Carmakers?

DETROIT -- (WWJ) Detroit's auto companies are keeping a close eye on the changing political landscape in Europe, as they try to turn around their money-losing European operations.

This comes after leftist Francois Hollande won the French presidency over conservative Nicholas Sarcozy and elections in Greece and Germany were seen as a rejection of "austerity programs," which called for big cuts, including plant closings.

"The political system has moved over to the left and they are going to question the austerity programs," said Jim Hall, who is managing partner with the consulting firm 2953 Analytics. "The ability to close plants, in some cases, was key to the austerity programs."

While they haven't outlined specifics, Ford and GM are drawing up plans for plant closings in Europe, as they try to lower capacity to meet demand, as they did three years ago in the U.S.

"Just like the United States, Europe has too much capacity right now," says Hall. "There has to be some rationalization of capacity for each of the manufacturers."

The current economic slowdown in Europe is seen as a permanent change, not a part of the business cycle.

But unions and governments in Europe have been resisting cuts. Chrysler CEO Sergio Marchionne, who's been trying to trim capacity for his Fiat brand says it remains a challenge.

"Restructuring plants in Europe is not a politically favored solution," he said. "There's a reluctance to embrace change."

First quarter profits at both Ford and GM were dragged down by losses in Europe. GM lost $256 million. Ford lost $149 million. While these losses were less than expected, both companies have vowed to turn those operations around.

"We'll continue to match our production to real demand by taking out shifts and reducing costs," said Ford CEO Alan Mullaly, with the release of the company's first quarter financial report.

Mulally promised decisive action to deal with the latest slowdown in Europe, which he called "very dramatic."

General Motors is a little less specific about its European plans.

"We're taking a lot of action on the cost side of the business," said CFO Dan Ammann. "More to come on that front."

Ammann, speaking during the release of GM's financial report, said he realizes that what works in the U.S. may have to be adapted to a different form in Europe.

"It's a different environment," he said. "We're working within that environment with all of our stakeholders to get where we need to get to."

GM Vice Chair Steve Girsky has been sent to Europe to work on a turnaround plan.

The bottom line from the changes in Europe, says Jim Hall of 2953 Analytics, is that it's still too early to draw definite conclusions. But, it's a situation that can change very quickly, especially if we see changes in other European countries governments.

"If this is a trend in Europe, you're going find it's going to be even harder," he said. "That means in some cases, profitability in Europe for some companies—not just the Detroit three, but some domestic home companies--is going to become increasingly difficult to the point where European production may not be profitable at all for some of these companies."

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