James Norris, Senior Analyst

29 November 2019

Light Vehicle plants

Cost pressures continue to drive utilisation improvements in Europe

The news is awash with automakers pledging unprecedented amounts to develop and produce electric vehicles – none more so than VW Group, which has promised investments of €33 billion in e-mobility over the next five years. On the flipside, these expensive outlays are prompting equally ambitious cost-cutting agendas. For example, Audi is planning to cut one in ten jobs by 2025, which will lower plant capacity and free up funds for the shift towards electric vehicle production. A favoured approach to lowering costs has been to share them through partnerships, as VW and Ford have done and JLR is looking to do, while a PSA-FCA merger appears increasingly likely. To further cut costs, manufacturers are streamlining the production process through platform sharing and plant optimisation. The latter represents Audi’s approach and is the focus of this article.

euro utilisation


Over the last decade there has been an obvious upward trend in pan-European utilisation rates (the ratio between production volume and plant capacity), with OEMs looking to lower excess capacity to mitigate high investment costs. Indeed, the region’s utilisation rates have grown markedly, from 58% in 2009 to 71% in 2019, due to a combination of capacity tightening (primarily through plant closures) and production volume growth (in line with an increase in domestic car sales and exports). While the 13 percentage-point increase over 10 years may appear relatively modest, after factoring in the obstacles to workforce reduction – such as political sensitivities and the influence of trade unions – it is quite impressive. And it is by no means easy to overcome these obstacles, as highlighted by Audi recently having to extend a labour agreement until the end of 2029 in order to gain employment concessions from its trade union.

The management of manufacturing utilisation is seen as a long-run necessity, given the immense and rising pressure on automakers’ profitability. With large-scale investments in R&D for ‘the future of mobility’ (which currently stand at €57.4 billion per year, according to the ACEA), further plant optimisation is likely. As such, pan-European utilisation rates are expected to improve, albeit at a gradual pace, and breach 75% by 2026. Group rates should also continue to converge, with a narrower spread of 70-82% in 2026, as manufacturers continue to seek efficiency gains in this high-cost environment. There are a couple of caveats to this prediction, however. If PSA and FCA merge, and cull some unused capacity (perhaps through the shuttering of the Ellesmere Port plant in the UK), we could reach this point sooner. On the other hand, if production falls below our expectations without an equal adjustment in capacity, the utilisation rate could fall short of the 75% mark, which has long been regarded by the industry as the profit threshold.