Massive Peugeot writedown points to imminent European financial shakeout

Losses from Europe’s non-German car makers are getting so huge that the long awaited financial shakeout can’t be put off much longer.

News from General Motors’ partner Peugeot-Citroen of France yesterday that it will take a massive, $5.53 billion write-down, comes just under a week before it publishes its financial results for 2012.

These numbers, expected February 13, will be dire – with some investors expecting net losses of about $2.4 billion. (GM will announce its results for Europe a day later.)

According to Vic Heylen, director of the Flanders Center for Automotive Research in Antwerp, Belgium, non-German mass car maker losses for 2012 will amount to between $10.7 billion and $12 billion.

Peugeot’s financial dilemma is inspiring reports that the French government will step in and prop-up the family-controlled company, in which GM has a seven percent stake. France already owns 15 percent of Renault, and any move to help Peugeot would immediately trigger complaints, probably from the Germans, that this contravened European Union rules.

The German manufacturers have resisted calls, led by Fiat-Chrysler CEO Sergio Marchionne, that the E.U. orchestrate financial assistance for the non-German financial basket cases. The Germans are against this because they feel they have already taken some harsh decisions to slash workforces, and spent huge sums modernizing and rationalizing production. Also, early this century, the German government embarked on so-called supply side reforms which ripped away over-regulation. Manufacturers like Peugeot and Renault were kept afloat after the 2008 slump by government loans and cash-for-clunkers subsidies. They should have put their houses in order like the Germans, but didn’t.

Even Carlos Ghosn, CEO of Renault-Nissan, has said the non-Germans must act. Last month at a conference in Germany, Ghosn said the European auto market is unlikely to recover before 2020 unless European governments like Italy, Spain and France follow Germany’s lead by introducing supply side reforms which would shake up rigid labor laws.

“(If this doesn’t happen) I see stagnation for a very long time,” Ghosn said.

Ford Europe has already reported a 2012 loss of $1.75 billion and expects to lose more in 2013. Fiat lost close to $1 billion in Europe and expects about the same this year. GM Europe’s Opel-Vauxhall will report losses reminiscent of Ford’s.

A similar financial mess in the U.S. was bailed out by massive government intervention.

Heylen doesn’t expect any intervention from the European Union, despite pleas from Marchionne, who also heads up the European Auto Manufacturers Association.

“The European Commission is in a complete state of denial. They keep insisting that salvation lies with the production of small, fuel efficient vehicles, in spite of the fact that makers of these vehicles are facing extinction (the non-Germans), while the makers of less fuel efficient vehicles flourish. Last month, the commission published a new $14 billion plan for installation of nearly one million charging stations for electric vehicles which nobody seems willing to buy,” Heylen said.

Europe’s ailing car industry has been on the financial edge for years but massive restructuring has been delayed, not least by national governments’ unwillingness to countenance the short-term political cost of job losses. The financial crises means this can be put off no longer.