The situation for automakers in Europe will continue to be extremely tough and more car plants will have to be shut down, Arndt Ellinghorst, head of automotive research at Credit Suisse, told CNBC on Tuesday.
Due to fierce competition in Europe's car market, currently roughly 60 percent of cars sold in Europe are sold at a loss, according to Ellinghorst. “There are too many brands in Europe that are competing at irrational prices," he said.
The auto expert said that cutting capacity is just one part of the answer to make up for the problems of the European car industry, and called on the European Union to put into place a European Auto Tsar to coordinate an industry-wide restructuring.
Ellinghurst recommended European politicians to look at how the American auto industry managed to recover after General Motors and Chryslerfiled for bankruptcy three years ago and the Obama administration decided to step in. The U.S. government funded a painful restructuring and reorganization of the auto giants with loans from U.S. and Canadian taxpayers.
The restructuring plans took out 25 percent of the American auto industry’s capacity, but allowed the sector to be profitable again at a lower level, Ellinghurst said.
French carmaker Peugeot on Thursday announced that it had to shut its factory and cut 8,000 jobs across its French sites, which sent a shock wave through the country and underscored the impact of the European sovereign debt crisis on the industry and exposed the country’s declining competitiveness.
On July 25 France’s government will unveil a plan which will support the country's automotive industry and will include measures to boost car sales.