The now unused Jaguar production line at Magna Steyr, Austria
Likes of Valmet and Magna Steyr have declined from making some 500,000 cars pre-Covid to 100,000 now
The European car industry is facing decline.
Sales in 2025 remain roughly 25% below pre-Covid levels, while production has dropped by around 20% as manufacturers have been forced to close factories or fall into overcapacity.
Factories that were once major contributors to Europe’s economy have been shuttered, including many last year: the Ford Saarlouis, Audi Brussels and Stellantis Luton are some of the most notable to fall.
Many that do remain are running with significant overcapacity, the average utilisation being just 55% in Europe, according to consultancy firm AlixPartners. That’s close or below the break-even point to make money on each car built, which generally sits between 50 and 80%. Hypothetically, if all car makers utilised each other’s plants, eight will need to be closed to reach a sustainable level of capacity.
So where does that leave contract manufacturing? An industry that used to be big business as manufacturers sought to outsource production while factories burst with demand from the growing European market now faces an existential threat.
Figures for EU, UK and EFTA in millions (SMMT, ACEA)
Sales
Production
2018
18.1
19.4
2019
18.1
18.5
2024
13.0
15.5
2025 (est)
13.2
15.4
Valmet
Peak production: 110,000 in 2018 – Mercedes A-Class and GLC
2024 production: 89,065 units – Mercedes A-Class and AMG GT 4-Door Coupé
2026 production: Mercedes A-Class and AMG GT 4-Door Coupé
Best known as the manufacturer of a great number of Saabs, Valmet of Finland has also produced European-market Ladas, Simcas and Talbots, the Opel/Vauxhall Calibra and the Porsche Boxster and Cayman.
With few remaining contracts after the 2008 financial crash, majority state-owned Valmet took on production of the Norwegian-designed Think City EV and Fisker Karma.
However, with Think going bankrupt in 2011 and Fisker following in 2012 (after just 2500 examples of each car were built), the risk of taking on start-up contracts backfired.
Since 2013, Valmet has built various Mercedes models, but once again the company is now facing a gap in its production lines.
One of those Mercedes is the AMG GT 4-Door Coupé, but that is due to be replaced this year by a production version of the electric GT XX concept that will be built in Germany.
The other is the A-Class, but production of the hatchback will come to an end in three years’ time, with its indirect replacement, the CLA, also being built in Germany.
In preparation for a slowdown, Valmet cut 1075 jobs (a third of its automotive workforce) last year. Production of the Sono Sion and Lightyear 0 had been planned but neither were realised as both start-ups encountered difficulties.
Facing a future without any cars to build, Valmet has further diversified into the production of components (including EV batteries) and into other industries such as defence, armoured vehicles, biomass boilers and carbon capture technology.
The loss of a car production line at Valmet would be a blow to the European automotive industry. Build quality is consistently reported to be better than that of the same models produced in their native country. According to the A-Class Forum, Finnish-built cars have better paint quality, better-applied rust protection, more closely aligned panels and fewer interior rattles.
Magna Steyr
Peak production: 168,822 units in 2019 – Jaguar E-Pace and I-Pace, Toyota GR Supra, BMW Z4 and 5 Series, Mercedes G-Class
2024 production: 71,900 units – Jaguar E-Pace and I-Pace, BMW Z4, Toyota GR Supra, Fisker Ocean and Mercedes G-Class
2026 production: GAC Aion Y, Xpeng G6 and G9, Mercedes G-Class
Magna Steyr is possibly the best-known vehicle contract manufacturer in the European automotvie industry.
The Austrian Steyr side was established in 1864 to make rifles before turning to cars in 1918. In 1934, Steyr merged with neighbouring car manufacturer Puch, and after World War II it began building Fiat cars under licence.
Canadian company Magna took a controlling stake in 1987. A 50:50 joint venture with Chrysler then resulted in the construction of a new factory line, which produced thousands of Voyagers and Jeeps in the 1990s.
By 2002, Magna had taken full ownership of Steyr and the Chrysler production line, expanding contract production of specialist vehicles to include four-wheel-drive cars (the Mercedes E-Class and ML and the BMW X3) and other small-volume models (like the Saab 9-3 Convertible, Mercedes SLS, Peugeot RCZ and Aston Martin Rapide).
In recent years, Magna Steyr has faced overcapacity, due to contracts not being renewed and partnerships collapsing. BMW 5 Series production ended in 2023 and BMW Z4 and Toyota GR Supra production will be over by March 2026. Its two Jaguar models were discontinued in December 2024 and two promising start-up contracts for the Fisker Ocean and the Ineos Fusilier fell through, resulting in 500 job losses at the plant.
Luckily, in their place Chinese brands Xpeng and GAC have stepped in, seeking to avoid the EU’s tariffs on Chinese-built EVs and to be within reach of achieving the UK government’s production-based emissions targets, thus qualifying their models for its Electric Car Grant (ECG).
However, with the capacity to build 200,000 cars annually, more holes will need to be filled to keep the 10,000 employees occupied.
Magna CEO Swamy Kotagiri said recently: “Chinese exports to Europe or localised production of Chinese cars in Europe is an incremental opportunity, not a risk.
“We’re well placed for the ICE [to EV] transition, no matter its ups and downs. If you look at 2025, we came in a little lower than what we had expected on EV, but it was offset by the ICE side of things.
“A lot of the investments, in either engineering or capital, are behind us. So when EVs come, it’s going to be with a tailwind.
“In terms of winning programmes with our customers, we are 90% booked [for the business as a whole].”
Pininfarina
Peak production: 45,000 units in 2000 – Fiat Coupé, Peugeot 306 Cabriolet and 406 Coupé, Lancia Kappa SW, Mitsubishi Pajero Pinin, Alfa Romeo GTV and Spider
2024 production: 100 units (est) – Pininfarina Battista and unknown specials into 2026
Italy’s Pininfarina is best known as a design house, especially for its work with Ferrari between 1961 and 2013, but for much of its existence it has also built cars.
After the 2008 financial crisis, however, investment in the sort of niche products that Pininfarina designed and built dwindled. The Volvo C70 was the last mass-produced car built by the firm after the 2013 closure of its Uddevalla factory in Sweden.
After a few financially rocky years, Pininfarina focused on diversification and now designs buildings, powerboats, tyres, jets and even trains.
Automotive remains the heart of the business, though, and alongside working with manufacturers, it earlier this decade designed and built the Pininfarina Battista electric hypercar.
Giuseppe Bonollo, the firm’s senior vice-president of mobility, told Autocar: “We combine all the aspects that are crucial to developing vehicles.
“We take our creativity and transfer it into 3D, and this is where we are recognised for our accuracy in the execution.
“Our job is more than the design of a vehicle: it is both creativity and engineering in one ecosystem.”
Despite being such a massive brand in its own right, Pininfarina operates a large part of its business behind closed doors.
Bonollo explained: “If a customer says ‘I want to keep this behind the scenes’, we are 100% respectful of that. And most of the projects that we have delivered remain behind the scenes.
“In the last few years, we significantly increased our activities in coachbuilding, acting as a turn-key provider to car makers in developing and manufacturing limited series that may go from just one unit to a few hundred.
“It’s probably the most top-secret part of our job, but that is the part of the market where we see possibilities to go further.”
Pininfarina is also getting in on the restomod trend, working on a reimagined Honda NSX with JAS Motorsport, the first of many to come.
To a small manufacturer, Pininfarina appeals, Morgan marketing and communications boss James Gilbert told Autocar recently.
“They’ve got far more design resource than we have,” he said. “There was obviously lots to be learned from Pininfarina and lots that their involvement brought to our brand.
“The Midsummer has been hugely successful, and that is in part down to the fact that we’ve got a Pininfarina badge on the car.”
Nedcar
Peak production: 262,196 units in 1999 – Volvo S40 and V40, Mitsubishi Carisma and Spacestar
2024 production: 5000 units (est) – Mini Convertible and hatchback
One contract manufacturer that failed to adapt was Nedcar. Its Born plant in the Netherlands started life as a DAF factory that was transferred to Volvo before being purchased by bus builder VDL to be turned into a contract manufacturer supported by the Dutch state.
Through the 2010s, Nedcar built Minis and X1s for BMWs. Come 2020, however, it was announced the contract wouldn’t be renewed. Instead, BMW would move production to its own plants, consolidating lines to allow for reduced costs in staffing, tooling, transport and logistics.
It was once touted as a key for BMW to increase flexibility (“contract production gives our global production network additional leeway,” Andreas Wendt, director of the BMW Group’s Regensburg plant said in 2014), but in the current market, manufacturers have ended up with too much flexibility.
Without any other contracts in place (a plan to manufacture for American EV start-up Canoo fell through in 2022), the Nedcar plant was closed in 2024.
The future of contract manufacturing
Contract manufacturing is undoubtedly declining. This year, as few as 100,000 contracted vehicles will be built in Europe, whereas production before the pandemic was touching 500,000 units.
In the current era of high-volume, skateboard-platform EV models, maximising factories and their production lines is key to lucrative profit.
Yet in an industry that operates in peaks and troughs, there will come a time when factories are full and these outpost plants are once again needed. For example, Mercedes last year sold a record 49,700 Magna-built G-Class SUVs.
However, as the peaks become less frequent and the troughs harder hitting, contract manufacturers may soon be fewer, with Valmet and Magna Steyr, for example, increasing their focus on component supply.
