GM Sees Europe Crisis ‘More Serious’ Than 2008 Credit Bubble

Europe’s debt crisis is a “more serious” situation than the housing bubble three years ago that preceded a global recession, General Motors Co. Chief Executive Officer Dan Akerson said today.

“The ’08 recession, which was a credit bubble that manifested itself through primarily the real estate market, that was a serious stress,” Akerson told the Detroit Economic Club today. “The government took some insightful actions. This is much more serious.”

GM, which hasn’t turned an annual profit in Europe in more than a decade, has declined in New York trading since rescinding its target for break-even results in the region. European operations lost $292 million before interest and taxes in the quarter ending Sept. 30, GM said last week as it reported a 2.5 percent drop in third-quarter net income.

Analysts have slashed their estimates for GM’s adjusted earnings in the fourth quarter by 49 percent after the company said last week that results for the period would be similar to a year earlier, citing weakness in Europe as a factor. All 14 analysts surveyed by Bloomberg cut their estimates in the last two weeks, reducing the average to 44 cents a share, from 86 cents.

“We’re dealt a hand and we have to play it as best we can,” Akerson, 63, said today of Europe. “It may get a little ugly at times, a little bumpy.”

Asked if some countries such as Greece may eventually leave the euro zone and lead to a breakdown of the currency, Akerson said “I wouldn’t doubt it.”

Euro Fight

“I know they’re going to fight to hold the euro,” he said. “I wouldn’t be surprised to see a two-tier system. You have these economies that are more sound than others.”

GM slid 3.8 percent to $21.79 at the close in New York. Detroit-based GM plunged 34 percent since its initial public offering a year ago.

The housing crisis led banks to pull back on lending in 2008. That depressed U.S. auto sales and helped push GM into government-backed bankruptcy in 2009. The U.S. Treasury Department spent $80 billion to rescue Chrysler Group LLC, GM and its lender GMAC Inc., now Ally Financial Inc.

The Treasury this month boosted the estimated cost for its bailout of the auto industry by 65 percent to $23.6 billion in a monthly report to Congress. After selling shares for $33 in an initial public offering a year ago, the U.S. would need to sell its remaining 500 million GM shares for about $53 a share to break even on its investment.

Europe Restructuring

GM had $900 million in restructuring and early-retirement costs in Europe and cut 5,800 jobs there through Sept. 30, the company said in a Nov. 9 regulatory filing. The company said it may face an additional $300 million in costs this year and in 2012 to complete the programs, which will affect 1,600 more employees.

Cadillac, which Akerson wants to expand and pair with Chevrolet as GM’s two global brands, isn’t ready for Europe in the “near term” until GM improves its diesel offerings, the CEO said. GM will produce Cadillacs “in volume” in China this time next year, he said.


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