Even if Europe's carmakers were better able to compete on a global stage, their home market is suffering. Car sales across Europe fell for the fifth year in a row in 2012, pulling back another 7.8 percent, according to data from consultancy PwC. Analysts say sales probably won't climb back to the 2007 peak before at least 2020.
One reason for the poor financial performance is idle factory floors. A report by analysts Alix Partners found that at the height of production in 2007, the industry in Europe was only using 83 percent of its capacity. It's expected to be around 75 percent for the next couple of years. One way carmakers in the U.S. have turned around their operations is by dealing with their own overcapacity problem, shutting 18 factories in four years; Europe has yet to bite the bullet.
On top of this, building a car in Europe is more expensive than in many competitor countries thanks to rigid labor agreements that drive up wages and offer generous benefits. Those same agreements also make it difficult to transfer jobs elsewhere.
The high costs of labor and the overcapacity at factories both conspire to eat into profits â¿¿ which could otherwise be re-invested in innovation and technology to capture new customers.The only way forward, analysts say, is to become leaner by tackling uncompetitive labor regulations and closing factories. This may be harder in some countries than others. In recent months, for instance, the French government and unions have fought plans by PSA Peugeot Citroen to trim its excess capacity by closing its Aulnay plant and eliminate 8,000 jobs. "The principles behind egalite and fraternite and all the rest are great if you can afford it," said Newton of the generous French contracts that also hamper other European manufacturers. "The problem is France really can't afford it when it's competing with people who basically make better products at a cheaper price."