With the opening of a brand new Mercedes-Benz plant at the end of March in Kecskemét, near Budapest - the first such facility in Europe outside Germany - the Hungarians have reason to celebrate.

The plant, which cost around 800 million euros to build, is expected to initially produce up to 120,000 cars per year, before later doubling its production. It is also creating about 2,500 new jobs. On March 28, while the Hungarians were ready to party, the atmosphere was much less festive in Russelsheim, near Frankfurt, where Opel's supervisory board was considering development prospects for the firm, a European subsidiary of General Motors (GM).

The German press was full of alarmist articles on the alleged intentions of GM to close its Opel factory in Bochum, Germany, and its facility in Ellesmere Port in the UK. The supervisory board did however not rule on the future of the European plants and has pledged they will remain open until the end of 2014. The festivities in Kecskemét and the tension in Rüsselsheim reflect the divergent views on the future of the European automotive industry.

Are there too many factories in Europe?

Sales of new cars in the EU are clearly dropping, with only 13.1 million cars sold in 2011 and even lower sales in 2012. Many European plants are running well below production capacity, resulting in losses to manufacturers. The firm Pricewaterhouse-Coopers has estimated the excess capacity at 4.4 million vehicles a year. This problem, typically European, is not seen in any other market in the world.

The automotive sector is a critical element in the battle for jobs. According to data from the Association of European Car Manufacturers, some 2.3 million people work in factories making cars, engines and spare parts, representing 7% of all people employed in the industrial sector throughout the EU, not counting the 10 million people in sub-contracting businesses.

The industry is also an important source of innovation. European investment in automobile research and development hits 22 billion euros, which is greater than investment in the pharmaceutical sector.

The second wave of crisis

During the first wave of the crisis in 2008 and 2009, many EU governments set up car scrappage systems, allocating financial assistance to buyers who replaced older vehicles with new cars.

But with the first wave of the crisis over, the time came to restructure and adapt European plants to meet current market needs. A need that is all the more important due to the drop in demand for new cars in Europe as a consequence of the eurozone debt crisis.

Several European plants have already shut up shop. Opel closed its Antwerp plant two years ago. As for the Swedish manufacturer Saab, it has not been producing vehicles for almost a year. The situation at Peugeot-Citroen’s factories is thought to be just as delicate, after the firm signed a strategic alliance agreement with GM, which may see the closure of the group’s French factories.

The Panda case

"Today, very few automobile makers are managing to make money in Europe. This is untenable and must change," said Fiat boss and current head of Association of European Car Manufacturers, Sergio Marchionne, on the sidelines of the last Geneva Motor Show.

He has urged European authorities to implement a policy to support the development of a European automotive industry capable of competing globally. He has also invited car manufacturers to address the problem of excess production potential, particularly exacerbated by the intervention of "member states which, under political pressure, have disrupted the balance of the common market".

While criticizing interventionism, Marchionne has praised Fiat’s decision to shift production of its new Panda car from its plant in Tychy, in Poland, to a factory in Naples, suggesting it is an example other manufacturers should follow. "The decision to bring the new Panda to Italy, was not based solely on rational grounds. We took it because of historical ties and close relations that bind Fiat to Italy," he said.

Christian Klingler, who sits on the Board of Volkswagen, believes that the real debate is not one of excess capacity in factories, but one of competitiveness. He believes it was correct in terms of competitiveness that the German company chose to produce its new city car Up! in a factory in Bratislava, in central Europe, rather than adopting a Fiat-style approach. For Mercedes, now located in Hungary, the calculation was a quick one: production costs are 30% lower there than in Germany.

Serbia

Fiat is a godsend

“30,000 cars by the end of the year”:headlines Danas. This is the forecast for production at the new Fiat factory, which opened on 16 April in Kragujevac, Serbia. The Italian carmaker has invested one billion euros in the plant which will produce a version of the Fiat 500, from parts that are all "made in Serbia".

Celebrated three weeks before general elections and an early presidential election to be held on 6 May, the inauguration of the factory is expected to boost support for outgoing president Boris Tadić and his Democratic Party. This is the theme of the cartoon by Corax, showing a Fiat filled with members of the government, which features on the daily’s front page.