The European supply base adapts to the “new normal”

The downsizing of OEMs’ capacities has had an impact on the capacity reduction measures implemented by suppliers in the region; with limited cuts of capacity as several suppliers hope for a return to pre-crisis levels. While some capacity reduction measures still take place in countries like France and Italy, the extent of the adjustment remains limited and largely mirrors OEMs’ limited adjustment to their overcapacity burden

European OEMs and suppliers are facing similar operating challenges; for example, the impact of excess capacity on profitability and the redistribution of production between high cost countries and low cost ones. As we have seen, European production volumes are about 10% below their pre-crisis level of 22 million units, which has a ripple effect on the local supply base. Few OEMs have decided to push for the plant closures required to address the excess capacity issue. Most of the capacity adjustment measures at the supplier level in countries like France, Belgium and Germany during the last three years were sparked by a function of OEMs’ decisions to close facilities. Ford’s decision to close its Genk factory in Belgium resulted in the loss of about 2,800 jobs at suppliers located in the immediate proximity to the plant, plus an additional 3,100 in the wider Flanders region.