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June 26, 2017

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Europe's carmakers ready cuts to emulate Detroit

PARIS--Europe's volume carmakers are returning from summer breaks with their sleeves rolled up, ready to shut plants and lay off staff in what many see as an overdue push to cut costs as their U.S. counterparts did three years ago.

In 2009, when the United States rescued General Motors and Chrysler from bankruptcy on condition they close plants and slash jobs to rebuild profits, European governments responded to a slump in vehicle sales by offering car firms aid to do the opposite — maintain employment levels in the hope of a swift recovery.

Three years on, and with no sign of an end to a European economic crisis that has crushed demand for cars in core Mediterranean markets, French and Italian makers, along with GM's German Opel unit and Ford's regional division, face less resistance from politicians and labor unions as they present cuts as an alternative to risking outright collapse.

Governments, including the newly elected Socialists in Paris, no longer have funds to bail companies out, and some union leaders are calculating that cuts now can save more jobs later — though few expect workforces, which have in some cases already been substantially eroded, to take plant closures quietly.

But American auto consultant David Cole said he expected major restructuring to get under way as Europeans faced the choice to "sacrifice a battalion in order to save a division."

"Everybody has decided this is the right time to make structural changes," said Cole, a former head of the Center for Automotive Research in Ann Arbor, Michigan.

"When they see that a company could disappear with all its jobs, they may realize it's better to lose 20 percent."

Factory closures are no longer the "taboo subject" they were when the industry faced the first wave of crisis after 2008, said Laurent Petizon, a Paris-based director for consultancy AlixPartners, which advised GM on its state-aided turnaround.

"There seems to be a growing realization that overcapacity needs to be dealt with."

Three years after the drastic cuts demanded by U.S. President Barack Obama's administration in return for public cash, GM and Chrysler are reporting strong earnings, even with the U.S. market still below pre-crisis levels.

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