Automotive News To GM And Ford: Get Out Of Europe Now
Over the last 12 years, GM lost $16 billion in Europe, more than a billion each year. Ford is doing a bit better, but it sits on excess capacity of 300,000 units in Europe and expects a loss of $500 million to $600 million. Automotive News [sub] recommends to both: Pack up and leave. Says Luca Ciferri in AN:
“The bottom line is that Europe is the biggest trouble spot in GM’s and Ford’s global empires and could prevent both from sustaining their success.
Ending production and sales in Europe would fix a lot of the companies’ financial problems, but it would be a massive blow to each automaker’s brand image because no one likes a quitter.
For decades, the automaker mantra has been “build where you sell.” But if there is not enough of a market to build cars profitably, then drastic steps must be taken.”
At least at GM, Fritz Henderson is being damned each day for not selling Opel and the Russians.
Two weeks ago, Tom Walsh wrote in the Freep:
“Was Fritz Henderson right after all, back in 2009, when he pushed for General Motors to sell its money-losing Opel subsidiary in Germany?”
“Even if GM is able to align its European capacity and costs with the depressed sales volumes in the region, real questions persist about whether GM can generate long-term profit margins that would generate an adequate return on capital in a very crowded market.”
There is no salvation in sight at GM. All Steve Girsky, GM’s designated hitter in Europe, can say is this:
“I don’t want to lead anybody to believe there’s any bright spot in Europe right now, although I will say it does look like things appear to be bottoming,”
Things may appear be bottoming because it can’t get any worse. Also, the agony will last longer than planned. Agreements with unions prohibit GM from closing plants before the end of 2014. Now, GM proposed a deal to extend this to 2016, in exchange for salary concessions.
Closing one plant alone would cost more than a billion dollars. The only way around this is bankruptcy. Many, among them Arndt Ellinghorst, head of Automotive Research at Credit Suisse in London, say that Ford and GM need their European engineering resources. At a cost of a billion and more a year, these are expensive resources, especially at a time when tech centers move to China and India.
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Yikes! Stupid short sighted advice. In case of GM sounds like at least a talking pont. In case of Ford, reeks of America-myopic-disastor advice. Most of Ford world wide sales come from Europe...
To make it simple, can you imagine the complexity of GM or Ford leaving Europe? The redundancy payments, the complication of adding production elsewhere, setting up new engineering centres elsewhere. At least now they can justify Europe as an expensive engineering consultancy. They do, however, need to increase either sales or decrease capacity in order to provide better capacity utilisation.