Europe's automakers face a dilemma: Many of their plants in the region are operating at a fraction of their capacity, but shutting them means inviting the wrath of unions and politicians.
Stellantis NV believes it has a way out. The company has met with China's Xpeng Inc. and Xiaomi Corp. to explore deals to potentially invest in the Fiat owner's struggling European operations and perhaps take over some of its excess capacity, Bloomberg reported Thursday. That would effectively give Chinese carmakers looking for a bigger slice of the region's market a way to produce locally.
Not so fast, say unions.
"It can't be up to Stellantis to decide which plants to cede, which to use, and which to use to forge alliances," Giorgio Airaudo, the head of the left-leaning CGIL union in Piedmont, Italy, was quoted as saying by newswire Ansa. "The Italian government must champion the interest of the country."
The stance shows the uphill task the region's automakers like Stellantis and Volkswagen AG will face as they seek to put their European operations in order in the face of weak demand, which hasn't recovered since the pandemic with cash-strapped consumers keeping vehicles for longer. Manufacturers have also stopped producing a range of small models, partly due to new European Union regulation mandating safety features -- like lane-keeping systems -- that crimped returns.
Shutting or shrinking a factory in the best of times in Europe can test the mettle of a company's management. But the automakers will be trying to do it as the political establishment tries to preserve jobs and ensure Europe's industrial base isn't hollowed out. The region's well-worn playbook includes keeping plants running, often costing millions amid false hopes of a rekindling of mass manufacturing.
"You cannot sustain healthy returns indefinitely with that level of underused capacity," said Andy Palmer, the former chief executive officer of Aston Martin. "If European manufacturers are tied up defending inefficient capacity and politically constrained assets, they are fighting with one hand tied behind their back," creating a clear opening for Chinese rivals, he said.
Stellantis is a case in point. The automaker has about 6.5 million vehicles of annual production capacity across the region, but plants are running at roughly 46% utilization, according to an analysis by consulting firm AlixPartners. That level of activity implies an excess of around 3.5 million vehicles, with plant utilization falling to the mid-40% range now from about 71% in 2017. Stellantis operates 24 plants in Europe, with 14 running below 50% utilization, according to AlixPartners.
The Fiat-maker's Mirafiori site in Turin last year operated at just under a third of its potential capacity, according to data from Just Auto. The factory has been open since 1939 and pioneered its modern production. Pomigliano near Naples, a plant capable of churning out 280,000 vehicles annually, was making less than a third of that, the data shows. Stellantis' Mulhouse and Poissy sites in France are operating at half their capacity.
"Overcapacity in Europe -- especially for Stellantis -- is hard to sustain over the medium term," said Dario Duse, AlixPartners' Italy country leader. "The ideal solution would be higher sales and production, but that's difficult in a stagnant market facing regulatory and geopolitical uncertainty."
Stellantis wasn't immediately available for a comment.
Volkswagen is in the same boat. In 2024, it sought to shutter three plants in Germany; a plan the company revised after union walkouts forged an agreement to cut 35,000 jobs at its namesake brand through 2030 instead. VW last year closed a factory near Brussels—the first time the company has shut a European automaking operation in its history.
Things aren't going to get better for the sector anytime soon, said Ferdinand Dudenhöffer, a German auto analyst.
"The oversupply in the European automotive industry will worsen significantly over the next six to nine months," he said, adding that a confluence of factors -- the Iran war, US tariffs and the conflict in Ukraine -- is dampening demand.