Is This How GM Will Fix Europe?
Nov 9th 2012 11:58AM
Updated Nov 9th 2012 12:02PM
Is General Motors (NYS: GM) really on course to fix its European mess?
GM says that it is. Last week, GM's Vice Chairman Steve Girsky, who is spearheading the efforts to turn around GM's troubled European operation, said that "green shoots" were already starting to appear in Europe after a series of organizational changes over the last year.
But many experts remain skeptical. A Reuters analysis last weekend skewered the General's efforts to date, citing Wall Street analysts who slammed GM for "lagging" after Ford (NYS: F) announced an ambitious European restructuring in October.
Is GM really far behind Ford? Or is its European operation finally getting back on course?
Huge chronic problems and "interim" leadership
Getting GM Europe on course will be no easy undertaking, because the scale of GM's trouble in Europe is simply enormous. GM's German subsidiary Opel has lost $16 billion since 1999, and those losses have accelerated in recent quarters. The General could lose $3 billion or more in the region in 2012-2013, it has warned, despite huge cuts in its salaried workforce and moves to expand markets and consolidate vehicle production.
Much remains to be done at Opel, but at the moment, the company doesn't even have a proper CEO. Officially, Girsky is effectively Opel's "interim" chief, appointed at the beginning of the latest Opel overhaul last year, while longtime industry consultant and turnaround expert Thomas Sedran was brought in last summer to run the company's day-to-day operations, also on an "interim" basis.
Several media outlets reported last week that GM may appoint Volkswagen's (NASDAQOTH: VLKAY) former China chief Karl-Thomas Neumann to Opel's top spot next year. Neumann was ousted as head of VW's huge China operation last summer in an executive shakeup; he was expected to take another senior-level job within VW, but instead chose to negotiate a severance and seek opportunities elsewhere.
Reports have suggested that Neumann would have to wait until mid-2013 to take Opel's top job because of conditions in his severance agreement with VW. If that's true - neither VW nor GM would comment on any of these reports -- it's likely that Sedran will continue to run Opel's operations until then.
And Sedran has already had his work cut out for him. The good news is that some positive steps have already been made - and reports suggest that more may be on the way.
Moving to make more cars in Europe
GM continues to make moves that suggest that it's not done tinkering with its chronically ill German subsidiary. When a GM Korea spokesperson confirmed reports on Tuesday that the company would not make its next-generation Chevy Cruze compact in Korea, speculation was rampant that the new model would be produced somewhere in Europe instead.
It's a likely move. GM makes the strong-selling Cruze in several different factories around the world, including in the U.S. But GM has an excess of production capacity in Europe right now, thanks to slumping car sales. As an alternative to closing more factories, as Ford has done, moving global production to the region makes some sense.
The new Cruze will be built on an all-new global platform that will be shared among several models, and could account for as many as 2.5 million vehicles a year - roughly a quarter of GM's likely global production. That much production will require several busy factories around the world. GM said Tuesday that the new Cruze will be built in five regions, including the U.S., China - and Europe.
A less obvious way to address Opel's biggest problem
Moves like that would help address Opel's largest problem: too many factories. As a general rule of thumb, auto factories break even once they're running at about 80% of total capacity. Any less, and they're losing money - most of Opel's are well below that number.
Most of the other automakers doing business in Europe have a similar problem, as deep recessions have dropped new-car sales to a nearly two-decade low. Ford chose to address its overcapacity issue in the obvious way, by announcing plans to close three plants. GM has announced that it will likely close one plant later in the decade, but it has been under pressure to do more.
But if GM instead finds ways to run those plants at a profit, by moving more of its global production to Europe, that could be just as good a solution.
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The article Is This How GM Will Fix Europe? originally appeared on Fool.com.Fool contributor John Rosevear owns shares of Ford and General Motors Company. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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