A worker checks a car at the Seat factory in Martorell near Barcelona. (Lluis Gene/AFP/Getty Images)
Speaking at a major car industry summit he also said the need to switch to low-carbon technologies would present British firms with a good opportunity to access supply chains dominated for decades by big combustion engine producers.
"The industry suffers from long-term structural overcapacity," he said in a speech to the Society of Motor Manufacturers and Traders in London.
He said that car production capacity was currently around 20 percent higher than demand.
"The long-term competitiveness of the motor industry in Britain and Europe depends on restructuring," he said.
"Even if we project huge levels of car ownership in the developing world, it is inevitable that some of that European capacity is going to have to be absorbed through consolidation."
He said that although the process needs to be guided by commercial logic rather than political considerations, government still had a major part part to play.
The car industry in Britain is overwhelmingly foreign-owned and employs around 800,000 workers, including nearly 200,000 in direct manufacturing.
U.S. automaker General Motors is in the midst of restructuring its struggling European unit Opel, having decided not to sell it to a group led by Canadian auto parts maker Magna.
On Tuesday the company slightly lowered its target for job cuts. It said that between 9,000 and 9,500 jobs would need to go at Opel and its British sister brand Vauxhall.
