Car sales in Europe dropped 10.2% in March, according to the European Automotive Manufacturers' Association (ACEA). The news not only shows how unlikely it is local car companies can rebound during the European recession, it also signals that revenue and profits from the region will cripple global earnings at General Motors Co. (NYSE: GM) and Ford Motor Co. (NYSE: F). GM continues to say it will keep operations in the region, though that becomes less practical by the month.
The specifics of the report on car sales in Europe showed a market falling relentlessly:
In March, demand for new passenger cars was on the decline for the 18th consecutive month, totaling 1,307,107 units. Over the first quarter of 2013, new car registrations amounted to 2,989,486 units, or 9.8% less than in the first three months of 2012.
The shocking news from the release was the slide in German car sales, which reached 17.1% in Germany, the region's largest area market, which produced 281.184 unit sales last month. Germany is not only the home market for BWM, Mercedes and Volkswagen. It is also the core market for the largest and second largest U.S. car markers. The largest country in Europe by gross domestic product was supposed to dodge the EU recession. Car sales in Europe show that has not happened entirely.
GM and Ford's European sales dropped more rapidly than the overall market. Sales of GM-owned brands - particularly Vauxhaul and Opel - were down 12.6% to 110,800. Ford sales fell 15.8% to 107,954.
GM has lost money in Europe since 1999, a period over which red ink has totaled $18 billion. Last year, its pretax loss in the region was $1.8 billion, which sharply eroded global results. Ford's European loss was $1.73 billion last year.
The industry's focus about Europe continues to be on GM. Its management still insists that the market can be turned around. All the while, the company suffers double-digit sales losses. Worse, these losses - both financially and in market share - are in a region in which the total industry is shrinking.
GM management believes that it cannot be a global company without significant presence in China, the United States and Europe. However, the plan breaks down badly where Europe is concerned. GM cannot offer any evidence that losses will not continue for years, or even longer. The idea of a three-legged global approach does not work when one leg is irreversibly broken.
GM needs to do what seemed inevitable a very few years ago. It needs to leave the European market to European car companies, many of which also lose money. They do, however, control the region, based on market share.
One method used by car companies to stem losses is the same as in most other industries - cut costs. However, powerful labor unions and local governments have leverage to prevent or slow such actions by GM. An orderly exit from Europe might convince these parties to change their stances. Nothing short of that will cause any concessions. Even with concessions, GM's revenue disintegration would wipe out the benefits.
GM is in much the same shape in Europe as it was in the United States in 2008, which caused its 2009 Chapter 11 filing. But GM cannot declare bankruptcy in Europe; the parent company is profitable overall.
GM's plan to stay the course in Europe is based on projections that are impossible to achieve. Its only option, other than cheating its shareholders, is to get out.
Filed under: 24/7 Wall St. Wire, Autos Tagged: F, featured, GM