Blog: Dave LeggettGM's Europe dilemma

Dave Leggett | 21 February 2012

So, Europe's car market is falling in 2012 and the pressures to do something about rising excess capacity are growing. For General Motors, it is a particularly difficult one and one that comes with history/baggage after the planned Opel/Vauxhall sell-off of a few years ago, the political furore over where future restructuring would happen and the eventual 180 on the sale from GM's board. Antwerp closure notwithstanding, GM's board has more or less sat on its hands on Europe since then with more important things to deal with (like getting back to profitability and an IPO). Now that the company overall is in reasonable shape, US recovery and China doing nicely, the spotlight is not unreasonably shining on the problems in Europe where GM is losing stacks of money - and it is structural as well as cyclical.   

Aside from the obvious thorny issue of applying the cost-cutting axe so that operations are left more efficient while avoiding heavy and counterproductive opposition or labour disputes (go for rolling capacity cuts at several plants or take a big plant out altogether?), there's another big problem. Restructuring comes with unavoidable costs. The pain will come with little short-term benefit to the bottom line.  

I have just seen an estimate from Barclays Capital that GM's European restructuring costs could total US$1.2bn if 4,000 jobs are cut. Other estimates for the restructuring charge GM will have to swallow are in the US$1bn area, taken this year and next.

Therefore, there's no magic wand on the Europe losses and the grief will rumble on for GM in the troublesome Europe region for a while yet. But it will be viewed more favourably by investors if it at least faces up to the problems and takes actions that are credible for putting it on a much better profitability footing a few years out.

Not an easy one though. Will there be voices in Akerson's ear saying 'let's just offload this political problem and fill the gap with Chevrolet'? Offload? Or do some kind of sharing deal with Fiat? But as Saab showed, that comes with other problems due to your embedded technology that you don't exactly want to present to a competitor on a plate. And there are the engineering resources that you are giving up, sunk investment that you are saying goodbye to. All in all, knotty. 


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