After a Loss, GM Plans Fast Action in Europe
General Motors vowed Thursday to accelerate changes at its troubled European division after a loss in the region dragged down the company’s profit by 41 percent in the second quarter.
GM said its net income in the quarter fell to $1.48 billion, from $2.52 billion in the same period a year earlier. While the company’s North American and Asian businesses posted strong results, it lost $361 million in Europe compared to an operating profit of $102 million a year ago.
The European business, which centers on the strugglingOpel brand, has been hemorrhaging money for a decade. Now, with the auto market on the Continent in its worst tailspin since the mid-1990s, the brand is damaging the health of the entire company. That is leading some analysts to question whether Opel can survive the expected brutal shakeout in Europe.
GM’s chief executive, Daniel F. Akerson, conceded Thursday that the automaker had not moved quickly or decisively enough to fix its European problems.
“In the past, we haven’t moved fast enough to fix things that we can control,” Mr. Akerson said in a conference call with analysts and journalists. “But that’s changed.”
Last month, GM replaced the top echelon of its European management team, including its chief executive and chief financial officer. The company is gearing up to cut costs there, primarily in its white-collar ranks. And like other auto companies in Europe, GM is grappling with how to reduce production to match steadily shrinking demand.
But so far, GM has refused to publicly discuss its turnaround plan for Opel or set a target for when it can make money in Europe.
Investors are losing patience and have driven the company’s stock price to new lows in recent weeks. On Thursday, shares closed down 2.6 percent at $19.14.
One industry analyst, Adam Jonas of Morgan Stanley, said in a research note that investors viewed GM with “a mixture of confidence and uncertainty,” particularly with regard to Europe. Even GM’s dealers in the region are calling for a new approach to solving its problems.
“It’s time for a real turnaround plan,” said Jaap Timmer, chairman of Euroda, the Opel dealers’ association.
GM nearly sold Opel three years ago before its reconstituted board decided to keep the business because of its integral role in the company’s global product programs. Two of the directors who championed the decision to retain Opel were Mr. Akerson and Stephen J. Girsky, the board’s vice chairman.
Europe Turnaround Has Been Tough
Now both are admitting that a turnaround in Europe has been far tougher than anticipated.
Mr. Girsky, who took over last year as head of Opel’s supervisory board, said in a statement Thursday that the company needed to wring more costs out of Opel while at the same time trying to bolster revenue in a deteriorating market.
“We are working hard on improving variable profit which includes reducing product cost, selling more cars and generating higher profit margins,” he said. “We are working hard on reducing internal redundancies and bureaucracies and realizing growth opportunities.”
GM has named a former outside consultant, Thomas Sedran, as Opel’s interim chief executive, and recruited two executives from the rival German automaker Volkswagen to take over its top finance and marketing posts.
But changing management and cutting costs won’t help restore Opel’s battered brand image anytime soon.
A headline on Wednesday in the Bild newspaper, which has the largest circulation of any German daily, illustrated the depth of the problem: “Why should anyone buy a loser brand?”
The turmoil within the company has been obvious to European consumers. “You can’t avoid hearing about it — it’s everywhere,” said Horst Kerkmann, a 52-year-old resident of Offenbach, near Frankfurt, who is considering buying a compact Opel wagon for his one-man business, which does maintenance and light construction.
He said he considered Opel cars to be reliable and long-lasting. He said he would probably decide whether to buy an Opel or a competitor like Peugeot according to which dealer offered him the best leasing terms.
GM’s North American business continues to thrive, posting $2 billion in operating profits in the second quarter. But globally, the company’s revenue fell to $37.6 billion, compared to $39.4 billion in the second quarter of 2011.
GM’s European woes are threatening to stifle its overall comeback since emerging from a government-financed bankruptcy in 2009. The company has not reported an annual profit in Europe since 1999. The company remains the fourth-largest carmaker in the European Union by volume, ahead of Ford and Fiat. But its market share slipped to 8.4 percent from 8.8 percent in the first six months of 2012.
A price war has broken out among European car manufacturers after the total market shrank by nearly 7 percent in the first six months of the year, leaving most companies with factories operating below capacity.
Adding to the pressure, Volkswagen, Europe’s largest carmaker, has also been discounting models and gaining market share. The company is increasingly dominant in Europe, commanding nearly 24 percent of the market, including its Audi, Skoda and Seat brands.
Even BMW, which has added to the pressure on Opel and with lower-priced models, has been discounting its entry-level 1 Series cars.
“Consumers are feeling insecure,” Norbert Reithofer, the chief executive of BMW, said in a conference call with reporters Wednesday. “The auto market is suffering from the European debt crisis.”
In such an environment, it is difficult to see how GM can restore Opel to profit soon.
One possibility, suggested by union leaders and some analysts, is to export more cars from Europe to America. Opels share parts with other GM models. And the Buick Regal, made in Canada, is nearly identical to the Opel Insignia made in Rüsselsheim, Germany.
“The problem is not the brand but what GM does with it,” said Ferdinand Dudenhöffer, director of the Center of Automotive Research at the University of Duisburg-Essen.
Shuttering the business is not an easy option either. The company employs 38,000 people in Europe, half of them in Germany. The dealer network in Germany alone employs another 30,000. Any major cuts would face huge resistance from political leaders and labor unions, which have a legal right in Germany to be consulted on job reductions.
GM is negotiating with workers on a plan that would probably call for closure of a factory in Bochum, Germany, after production of the current version of the Zafira minivan ends around 2016. But that would probably still leave GM with too many factories.
Opel is also expected to trim executive staff at its headquarters in Rüsselsheim, near Frankfurt. But the company has said little about cost cuts and instead insisted that it could regain market share with planned new models like the Adam, a sporty compact that it hopes will be able to compete with the BMW Mini and Fiat 500.
Mr. Timmer, the chairman of the dealers’ association, said that many buyers were delaying purchases because they were worried about the European economy. As they did in the United States, sales could return when people become more confident, he said. “I think the same thing will happen here,” he said, but added, “don’t ask me when.”