Proceed with Caution

Carried away by present prosperity, some Common Market businessmen see no ceiling to consumer demand in Europe. In sharp contrast to this rosy view is a still-unpublished report on the European auto industry, which was prepared by a group of Common Market economists and recently leaked to the French financial press. The gist of the report: Unless they recognize that European demand for cars is not inexhaustible, Europe's automakers are headed for trouble.

At the moment, the European auto industry could hardly be healthier. Since 1953, its sales have been rising at an average 16.8% annually; last year a decline in exports to the U.S. was more than offset by rising sales within the Market itself. Thus encouraged, nearly all Europe's automakers plan to expand. Ford is building a huge auto assembly plant in Belgium; General Motors' Opel is opening a new factory in the Ruhr; Alfa Romeo intends to hike its output from 300 to 400 autos a day by next year.

It is all this expansion that worries the economists. Since 1959, Europe's automakers have already increased their annual capacity about 40% to 4,300,000 cars. There are now five times as many cars for every 100 people in Europe as there were at the start of the postwar boom. The Common Market economists suspect that this means that auto sales in Europe will soon begin to level off, and they predict that if the automakers continue to expand they will find themselves in 1965 with the capacity to produce 6,500,000 vehicles, but only 5,300,000 sales.

The Eurocrats apparently hoped, by leaking their report, to convince Europe's automakers that the European auto industry should go in for comprehensive economic planning along the lines now practiced in France. But the report left Europe's automakers unmoved. They mostly agree that overcapacity will result if all present expansion plans are carried out, and they frankly admit that within the next few years they expect a shake-out similar to the one that rocked the U.S. auto industry in the 1920s. Says Fiat Vice Chairman Giovanni Agnelli, 40: "There are about 40 automobile manufacturers in Europe today; 20 of them will probably have disappeared by 1970." But Agnelli, along with most of his competitors, believes that it is the other fellow who will get hurt.

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