Pressure is rising for EU initiatives to help the European car industry recover from its five-year slump and win its battle with chronic overcapacity.

Austerity-strapped governments are highly unlikely to revisit the "cash for clunkers" program which helped automakers when the crisis in the industry unfolded in 2008 and 2009.

But there is growing political recognition of the industry's strategic importance for Europe, indicating that political backing for EU-wide measures could be a next step, according to a CARS 21 policy document from a key sector advisory panel seen by Reuters.

The long-standing CARS 21 group, comprising auto company executives, European Union member state ministers and EU commissioners, has been reinvigorated with a remit to explore policy options.

In the document seen by Reuters, the group said the short-term outlook for Europe's car market is different from a year ago and needs a new approach.

All major car makers except Volkswagen  lost money in Europe last year, where withering sales mean the industry now has at least 20 percent more factories than needed, according to analysts and industry executives.

PSA Peugeot Citroen
 forecast a tough second quarter when it reported earnings earlier on Wednesday, saying first-quarter sales fell 7 percent.

Weak demand is forcing carmakers to cut prices, sending them into a negative spiral and making cost savings an imperative.

Fiat  and General Motors's  Opel-Vauxhall unit each shut one plant last year, and more plant closures are expected to be announced in coming months by Peugeot and Opel.

LOBBYING FOR CHANGE

The European Car Manufacturers Association (ACEA) has been pushing hard to get Europe's automotive industry crisis onto the EU policy making agenda.

The EU cannot intervene in member states' car markets and has limited tools to combat the market slump.

But it can take steps to lighten regulation, facilitate more coordination in technical investment and address free trade issues - all areas which can impacts costs.

The 2009 scheme which allowed governments to subsidies new car purchases would no longer be effective because of "austerity measures in member states," the April 18-dated CARS 21 document said.

The CARS 21 document noted that "these same measures would not tackle the current challenges which are very different," and "in times of strong fiscal constraints for authorities, measures to sustain the demand for new cars are not likely."

The EU's policy response could be crucial in determining whether national governments put pressure on automakers not to close plants, or let the industry adapt to lower demand as it has in the United States, where U.S. carmakers closed 13 plants between 2008 and 2012.

SENSITIVE TO CLOSURES

Plant closures remain a politically sensitive topic in Europe. CARS 21 is committed to keeping as many factories open in Europe as possible, said a spokesman.

Complicating the struggle for consensus on how to combat the industry's woes are the internal divisions between mass market volume producers like Fiat and Peugeot - which would favor EU help - and premium producers like Daimler AG's Mercedes Benz and BMW - which would not.

CARS 21 members are trying to bridge these divisions as concerns grow over the ability of all of Europe's car builders to take advantage of growth elsewhere.

"The internal market decline seems linked to the European economic outlook, but this decline could impact the worldwide competitiveness of cars manufactured in the EU," the document said.

"One can wonder however if the European economy is profiting to its full potential from the growth in global car markets," the report said.

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