Reilly reckons that General Motors is easing Europe into profit

Reilly reckons that General Motors is easing Europe into profit

GM chief Dan Akerson has dismissed the rumours of an Opel/Vauxhall sale. This is quite a departure in that his colleagues have now spent several weeks declining to do any such thing.

If you are a publicly listed company, there are rules and regs relating to price-sensitive announcements and, only four weeks ago, his top man in Europe and fellow main board director, Nick Reilly, was saying that once you start commenting on market rumours you lay yourself open to being required to do it consistently.

So what sparked the change of heart?

The reason is in two parts: first, by any objective measure Opel and Vauxhall are not really saleable. Western Europe is the most fiercely competitive of all regional markets. There is massive over-capacity and whisker-thin margins. The only real advantage is if you can generate scale benefits by using common platforms for global markets as Ford is now doing with the new Focus. GM will get platform shares initially out of common design from Buick for the US and China.

Secondly, Reilly reckons that General Motors is easing Europe into profit [it today reported a second quarter EBIT-adjusted $0.1bn, up $0.3bn from loss a year ago - ed]. Because of the heavy restructuring costs, that will not happen this year but it will happen next year – barring some unforeseen calamity.

“We have taken a big chunk out of capacity. We are running at 90% capacity now and will get 100% over the next few years.”

As Reilly says: “That gives us a little bit longer to think a little bit harder.

“We have new products winning awards and taking market share in July. We are up again on a year ago.”

There is also good touchy-feely stuff to report. “We went through the most difficult time in Germany but the atmosphere is vastly different now.

“Chevrolet increased share across Europe to 3%.”

Not bad considering it has only been a full player in Europe for six years. It’s doing especially well in central and eastern Europe where the American badge has particular resonance.

There are strong reasons for imagining Chevrolet as the lead brand eventually. GM means little in Europe. Opel/Vauxhall means nothing in the US. If GM is to maximise the value of its global reach it has to make choices. But Reilly is quite adamant that it would be madness to get rid of Vauxhall while it is number two in the UK market. The downside of the high UK market share, though, is the weakness of the pound that is “really hurting profit.” Hence the “thinking a little bit harder”.

Some GM models – like Meriva and Zafira - will remain unique to Europe and will need their own platform. But there are alliances a’coming no doubt. Few manufacturers can afford electrification costs alone and that puts GM in the pound seats given that, with Volt/Ampera, they have the longest design and operations experience. 

The lead on electric cars is going to be helpful for pricing because pricing on the standard fare is brutal. Demand in Europe will good if the US experience is anything to go by.

“We are pretty much sold out there.”

The other indicator is a surprise: “We believe that some of our dealers are taking orders above list price.”

Now there’s a phenomenon new to the European auto industry.