Europe's deep economic woes are clobbering automakers. For example, Ford posted strong profits from North American sales, but lost $404 billion in Europe and posted smaller losses in Asia and South America. Meanwhile, Daimler, says slower growth in China -- which has a huge appetite for Mercedes-Benz and other German luxury cars -- is pinching that company's earnings.
Ford, despite political and labor opposition to factory closings, can shrink capacity in Europe. But that is not the case for Peugeot, which needs to find $1.5 billion to stem the cash hemorrhage. The company faces nearly insurmountable pressure from the French government and labor unions.
According to The Wall Street Journal, European edition, Peugeot has been cutting production for years and needs to close an assembly plant north of Paris and lay off 8,000 workers. Successive government leaders have kept the plant open despite the well-known fact that high fixed costs from producing too many cars is killing the company. Since 2007, Peugeot sales have dropped 25 percent.
Peugeot's chief executive has called for a massive cut in labor costs that companies in France have to bear, as the family-controlled auto maker tries to influence pending government proposals to support the sputtering auto industry.
"We have the most expensive labor costs in Europe," Peugeot Chief Executive Philippe Varin said. "In France, we need to lower costs weighing on labor in a massive way."
Peugeot 's effort to increase sales outside Europe is not working and now is pinning its hopes on hybrids and electric cars. Meanwhile, the government will raise the subsidy for electric vehicles from 5,000 to 7,000 euros, a measure which is expected to cost the financially strapped French government, 490 million euros in 2013.
So what does this all mean for us?
Simply put, when the government intervenes in the market, it is costly in both the short and long term. Hopefully, companies such as Ford will still be in a position to respond to markets and not be subjected to the same government restrictions, political pressures and labor actions that Peugeot faces. If that happens, production will shift offshore and foreign producers will have a market advantage.
When will the politicians learn that consumers pick winners and losers in the marketplace, not them?
AWB President Don C. Brunell is in Poland this week helping with Poland's version of Washington Business Week: "It is interesting looking at America and Europe from across the pond, as the British say."
