After a year of the lowest car sales since 1994 and factories operating at ten percent below the profit margin, European automobile manufacturers are being forced to restructure companies by cutting payrolls and closing factories just to survive. But with political resistance to cutbacks, strong unions, and strict labor laws, the question is whether companies can do it fast enough to survive.

In the 2009 recession, France and other European countries spent billions bailing out car companies. Instead of using that money to downsize factories and cut payrolls, it was used to subsidize salaries and offer consumers incentives to buy new cars. With automobile manufacturers back in the same position, they are once again turning to the government for help. But for a recovery plan to work, European leaders need to reconsider a free trade agreement with South Korea. Automobile executives say that these agreements are significantly hurting the industry by allowing Korean automakers to gain a jump in the market share.

The European automotive industry is key to the strength and competitiveness of Europe. The sector not only provides direct employment to more than 2.3 million people but also supports another 10 million jobs indirectly.

Automobile manufacturers reported the sales of new vehicles rose 26% in May compared to last year despite the slow recovery of the American economy. Americans bought over 1.3 million new vehicles last month according to Autodata Corp., giving automobile manufacturers a reason to add jobs and increase production. Analysts say the numbers are distorted because last year major Japanese auto companies were dealing with shortages brought on by the aftermath of the tsunami and earthquake in Japan. This year they posted some of the largest gains. Industry analysts, however, had predicted an even better year over year increases, predicting the annualized sales rate would be 14 million to 15 million. Much of the higher demand for new vehicles is being blamed on the age of existing models on the road. Vehicle registration data shows the average vehicle age at 10.8 years. Better sales, combined with the deep restructurings in recent years, have also resulted in healthy profits for the car companies.

Auto makers expressed confidence the industry will remain on an upward trajectory. “I don’t believe that the employment data in and of itself will have an impact,” according to Ken Czubay, Ford’s U.S. marketing and sales chief. “The dealers are telling me that they had excellent traffic over the weekend. There is significant pent-up demand in the marketplace.”