Adam Jonas, who is quite tickled that GM should launch a new small car called the Adam, is something of a legend among motor industry analysts for his ability to stimulate…and irritate…the great car makers of the world.
So it is with a frisson of excitement that we open his latest published package of thoughts on GM – the biggest fish in the sea of listed auto makers.
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And sure enough, his thoughts are piquant. As with the Daimler dumping of Chrysler and the BMW disposal of the dog called Rover, his proposal is that GM should drown or cast adrift the less-than-buoyant Opel/Vauxhall.
The GM share price as we speak is $22. With GM’s European operations disposed or closed, he reckons, that would leap to $32. Such is the benefit of saving the annual losses of his estimated $1bn. Additionally, there is the incalculable benefit of weary executives spared from wrestling with the problem. What sort of shareholder would object to that?
With the light vehicle market in Europe going down, with the beneficial ownership of Chevrolet and its manufacturing advantages in Korea, and with the developing joint venture with PSA Peugeot Citroen it could escape the high-cost, low-selling price bind that impedes Opel/Vauxhall.
The Jonas maths gives us a current negative margin of 7% which could nearly halve within five years.
The extremes of the outcomes have the capacity to change GM’s profit by tens of billions of dollars, Jonas reckons. In part, that must derive from GME’s loss of market share. Over the last seven years it has shrunk from 9.5% to 7%. Fewer cars sold means fewer euros sluiced away.
The total market demand is also in decline in Europe meaning that the intense competition is getting even tougher. That creates an imperative to avoid high European production costs and to migrate production outside Europe. Already there have been tentative steps to places like Turkey where production costs are at least 10% more favourable.
GM cars in Europe are not cheap – on purchase price, lease price or total cost of ownership. Looking at all the rankings, GME product ownership cost is either on the average or above average for their class. Weighing most heavily in that is depreciation. Premium cars such as Mercedes can now undercut GME on selling price because of the more favourable depreciation curve. In the UK, a BMW will routinely sell on a better lease rate than a Vauxhall – before the application of promotional or distress discounts.
That immediately disqualifies contract hire or rental purchasers…until the maker caves in and offers an uneconomic cost to recover volume and average cost per unit.
“It would be better for GME to have a 3% market share in Europe making a profit than an 8% market share making a loss,” Jonas says in summary. Interestingly, that could be achieved by Chevrolet without Opel or Vauxhall. Food for thought in the staff canteens of Detroit.
Rob Golding
