GM is looking to create a new pan-European company based in Belgium.

Reports in the German press suggest that General Motors is considering setting up a new pan European company in its attempt to stay ahead in a fiercely competitive automotive market. The company is right to consider radical options: this will enable the loss-making European division to cut costs and simplify its complex management structure.

Over the past few years, GM has been facing problems with its European brand strategy and product line-up. Europe is crucial to GM as it accounts for approximately 20% of the company’s global sales. However, in 2003, the European division made losses of $US286 million.

The European auto market has become very competitive due largely to the success of the Japanese manufacturers, particularly Toyota. Within a saturated and competitive market, companies have to be innovative and respond quickly to any market changes. However the current complex structure of GM’s European arm does little to facilitate the decision making process.

Over the past few months, the company has initiated a ‘spring clean plan’ to centralise the management of its three brands – Opel, Saab and Vauxhall – although each brand still operates as a separate legal entity. The group has also centralised all important vehicle design activities to Zurich in an attempt to increase efficiencies and save money.

Despite these changes, GM Europe’s Q3 2004 results were still very disappointing, and the operation’s losses over the past four years now amount to $2 billion. The losses racked up by the division since 1999 have finally prompted GM to consider a radical cost-cutting strategy, which would remove all autonomy from its three European brands and create a new European company in legal terms. The move would take advantage of a recently approved European Union rule that allows companies operating in multiple EU member states to have a unified management and accounting system.

Though such a step would risk courting criticism that GM is diluting the identity of some of its most successful brands, the company is right to be radical in acting to rein in costs. In a tough trading environment, GM must stem its losses or its status as one of Europe’s top five selling automakers will come under serious threat.

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