Caterpillar, Other OEMs Thinking Twice About European Manufacturing

The European debt crisis is doing much more than depressing investors’ appetites for risk and savers’ rates of deposit interest – it is causing major long-term harm to Europe’s manufacturing capability.

Caterpillar became the latest American firm to announce major job losses and rationalization at its European operations. The firm plans to cut 1,400 jobs in Belgium, announcing last Thursday that it was forced to make the job cuts at its Gosselies plant near Charleroi, which employs 3,700 people, because of the troubling state of the European economy and rising costs.

In addition to Caterpillar, Reuters reports a string of other firms doing the same.

Ford announced the closure of its Belgium plant leaving 4,300 people unemployed; General Motors closed its Opel plant in Germany, shedding more than 3,000 jobs; ArcelorMittal, after fraught discussions with the French government, now plans to slash hundreds of jobs at its steel plants in France and Belgium; and Dow Chemical announced the closure of operations in the Netherlands, Belgium, Spain and the UK.

The paper quotes research by the consultants and auditors Grant Thornton, who interviewed more than 12,000 executives in 41 countries. The firm said that companies have lost about $2 trillion since 2009 because of the Euro-zone crisis, while unemployment has reached record levels with nearly 19 million unemployed.

Interestingly, the economic crisis is not the only reason why global companies are quitting Europe, according to the paper; the burden of costly regulation as well as the high cost of labor and taxation is forcing many to look for better opportunities in emerging markets.

If the French needed any further indication of the folly of their recent tax changes, they only have to look at what’s going on around them.

The sad fact is that in spite of rising unemployment and low inflation, Europe is, for many global manufacturers, just too expensive as a manufacturing base. As Caterpillar is quoted as saying: “It currently costs less to import machines to Europe from other Caterpillar locations than to produce them in Gosselies.”

So why would they?

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