Opel's declining market share is weighing down the General Motors balance sheet.
General Motors faltering European operations are coming in for additional scrutiny from GM’s top management after posting a loss for the third quarter – and putting an end to hopes of finally staunching the flow of red ink at the troubled subsidiary.
GM Europe finished the quarter reporting an EBIT-adjusted loss of $300 million. Overall, GM earned $1.7 billion in the third quarter, compared to $2 billion during the same period in 2010, the 15% decline largely the result of problems in Europe and Latin America. (Click Here for more on GM’s second quarter results.)
GM Chief Financial Officer Dan Ammann lamented that, “We have to do a better job in Europe and South America. The results there are just not sustainable.”
GME had shown some positive signs by breaking even during the first quarter of 2011 and turning in a modest profit three months later, but the latest figures raise questions about forecasts that the European subsidiary will be able to push back into the black for all of 2012.
GM of Europe, while making progress, is now expected to lose money again in the fourth quarter as it fails to meet corporate objectives laid down last year, acknowledged Amman.
GM CEO Dan Akerson also suggested that GM’s European management is on notice. CEO Nick Reilly will step down at the end of the year with senior engineer Karl-Friedrich Stracke taking his place. (Click Herefor that story.)
According to Akerson, GM will unveil a new plan for its European operations in the very near future. The CEO said GM is looking at ways to reduce the European operation’s expenses.
“We need to lower our cost base in Europe,” Akerson said, adding “More on that later.”
Reductions in any company’s breakeven point invariably translates into the closing of plants and cuts in headcount, which have so far been difficult for GM to achieve in the heavily regulated European Union.
Ackerson laid the blame on the need for additional reductions in European expenses on the economic environment in Europe, which has been hurt by the uncertainty created by the Greek debt crisis – which continues to spread across the Continent. The debt crisis is also blamed for reducing the rate of economic growth in Europe – which is translating into slower car sales even in strong markets like Germany.
CFO Amman said he hopes to bolster GM of Europe by raising prices and introducing new models, which will bolster the revenue side. Meanwhile, Opel, GM’s chief brand in Europe continues to lost market share in both Germany and Great Britain.
Ackerson also said GM is looking at ways to restructure its Brazilian operations. GM already initiated a voluntary retirement and buyout plan that has reduced GM do Brazil’s workforce by 4%. However, Ackerson said the personnel cuts in the company’s Brazilian operations will “have to go deeper.”
GM, however, continues to gain market share in China. GM’s sales in the booming Asian market are up 10% this year while the overall growth of car sales in China has fallen to about 3%.