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Carmakers must cut production to meet genuine demand, says Ford's Mulally

Alan Mulally, chief executive of Ford, has warned that European carmakers need to cut back further the numbers of cars they can build as excess capacity on the Continent remains at dangerous levels.

Idle production lines and underproductive factories have plunged almost all of Europe’s major carmakers into billion-dollar losses in recent years after annual sales on the continent fell by about 4m cars between 2007 and 2013.

In an interview with the Financial Times, Mulally said the closure of a handful of European factories over the past year was not enough to bring capacity down to a sustainable level.

Car sales fell to a two-decade low in 2013 as losses from the Continent dragged down global earnings for the world’s biggest carmakers. Although sales have risen in every month so far this year, Mulally cautioned that the positive growth was masking deeper problems that needed to be fixed.

“It is not enough. Companies need to match their production to demand,” he said.

“If you do not match production to the real demand, it is going to be exacerbated on the way down, because then it all gets worse.”

Car sales in Europe rose 7.4% during the first four months of this year, but analysts say that heavy levels of discounting are propping up sluggish genuine demand in a region with tepid economic growth, high unemployment and low consumer confidence.

Because of their high fixed costs, car factories need to be running at about 70% of their designed capacity to be profitable.

Mulally steps down as CEO on July 1.

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