CAR sales in the European Union have been falling for five years, and there seems no end in sight to the slump. Official figures out a few days ago showed that registrations were down almost 11% in September compared with a year earlier. In France the fall was 18%, in Italy 26% and in Spain a staggering 37%. Britain was the only significant market to enjoy a small rise.

Europe was already over-supplied with car factories in the good times, when sales were around 17m a year. Now they are down to about 13m the overcapacity is glaring. But so far there have been only piecemeal cuts. Fiat’s boss, Sergio Marchionne, has so far got nowhere with his proposal for the European Commission to oversee a drastic restructuring of the industry, rather like the big motor-industry cutbacks that America’s government co-ordinated during the financial crisis. On October 24th the painful but necessary rationalisation took one step forward and one step back. Ford announced plans to shut an assembly plant in Belgium, as the French government unveiled a bail-out for Peugeot-Citroën conditional on it re-examining its plan to cut more than 6,000 jobs and close a factory near Paris.

The rescue of Peugeot comes in the form of up to €7 billion ($9 billion) of credit guarantees to the company’s finance arm, which lends money to car buyers and dealers. There are other strings attached: Peugeot must accept a worker representative and another, state-approved, outside director on to its board, and must suspend paying dividends and granting executive share options. The company also announced progress on its proposed alliance with GM’s equally troubled European carmaking arm, Opel-Vauxhall, in particular a plan to work together on a new range of models, which would have much of their innards in common but different external styling. The logical next step would be to for Peugeot and Opel to merge and eliminate their overlapping production capacity, but this would face fierce resistance from unions and governments.

The two firms hope that by sharing the cost of developing cars and buying supplies, they can each save $1 billion a year by 2016. But neither has the luxury of that much time. Earlier this year Peugeot admitted it was burning cash at €200m a month and thus risked running out of money within a couple of years. It is pinning its hopes on a new “supermini” car, the Peugeot 208 (pictured), launched earlier this year; but already weaker than expected sales have prompted it to cut production. GM, still part-owned by the American taxpayer following its bail-out, has already announced plans to close an Opel plant in Germany, but is under pressure to go much further. Opel has lost perhaps $16 billion since 1999 and a recent analysis by Morgan Stanley, an investment bank, found that without more drastic action its losses in the next 12 years could be higher than those of the past 12. The bank suggested GM would be better off without Opel, even if it had to pay another firm up to $13 billion to take it away.