General Motors Co. (GM), which yesterday posted a record annual profit of $9.19 billion for 2011, said more cost cuts are coming for its money-losing Europe unit after the last turnaround plan failed to end losses there.
“We have to match capacity with demand, and demand has been falling,” Chief Executive Officer Dan Akerson said of Europe yesterday during a conference call with analysts. “We are looking at everything in order to achieve a better break- even point, a lower break-even point, and scale. There’s more to come on this, I think, in the next couple of months.”
The automaker’s Europe business, including the Opel brand, lost $747 million last year before taxes and interest. While that’s an improvement from $1.95 billion lost in 2010, it’s not break-even as Detroit-based GM had planned until November when it pulled back the forecast as the European outlook worsened.
Less than three years after the bankruptcy and government- funded reorganization that put Akerson on GM’s board, the automaker is again the world’s largest. Powered by growing sales in the U.S., where it cut labor costs and closed factories, GM has become more profitable than at any time in its 103-year history. Now Akerson wants a similar turnaround in Europe.
“There’s a general recognition by all constituencies that the situation in Europe today is not a whole lot different than it was in the United States or North America, generally, three- plus years ago,” Akerson said.
While GM has gained ground in the U.S., Ruesselsheim, Germany-based Opel and sister brand Vauxhall in the U.K. have continued to lose market share under pressure from competitors such as Volkswagen AG (VOW3) and Hyundai Motor Co. (005380) A drawn-out rescue effort in the wake of GM’s bankruptcy, including an aborted sale, also soured consumers on the brand.
“Opel’s Achilles heel is its lack of flexibility,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen. “As soon as Europe weakens, the company runs into problems.”
The automaker is in talks with Opel’s unions to lower the break-even level of unit sales by reducing costs and raising the number of shifts at Opel’s factories to three from two, Opel Chief Executive Officer Karl-Friedrich Stracke said. He said the talks will probably take “a couple months.”
In Europe, where GM hasn’t recorded an annual profit for more than a decade, the average of three industry analysts’ estimates was for the fourth-quarter loss to increase to $358 million from a deficit of $292 million in the third quarter.
GM Europe lost $562 million in the fourth quarter, little changed from a loss of $568 million a year earlier. Last quarter’s loss included about $200 million in restructuring costs that weren’t reflected in the estimates.
The industry in Europe has too many factories capable of making too many vehicles, and the sales outlook isn’t expected to improve this year, Chief Financial Officer Dan Ammann said.
“The industry is over capacity,” Ammann said of Europe. GM is working on “the pieces of our business that we can control, working with all of our partners to get to the right answer overall.”
Union leaders called on the company to shift the production of Opel models assembled outside Europe, such as the Korean-made Mokka compact sport-utility vehicle, to the unit’s own factories to make better use of the assets. They also urged an expansion of Opel’s export markets.
“In order to fully use the capacity of the European plants, the planned import of Opel/Vauxhall vehicles from other global regions to Europe needs to be reconsidered,” Wolfgang Schaefer-Klug, the unit’s top labor leader, said yesterday in a statement. “It will be important to reduce material and product costs and to expand access to foreign markets.”
The company is in talks with GM partner SAIC Motor Corp. on expanding into China, Stracke said. He declined to say whether Opel may produce models at GM’s joint ventures in the world’s biggest auto market. There are no restrictions on Opel’s ability to export cars, said Ammann.
Plant closures won’t be part of the near-term solution as GM is bound by labor contracts that prohibit shutdowns and forced layoffs until 2014. Stracke declined to comment on measures after that point. He said GM planned to stick to plans to invest 11 billion euros in Opel through 2014.
GM rose 0.6 percent to $27.34 at the close in New York.
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