European auto sales will weaken further this year and Germany may be slipping into recession, General Motors Co’s top executive said, making the U.S. auto maker’s task of turning around its money-losing Opel unit in that region more difficult.
However, GM chief executive officer Dan Akerson said on Wednesday the company was cutting losses at Germany-based Opel as it aims to achieve its previously stated target of returning the unit to profit by mid-decade. GM had said it expected a 2012 operating loss in Europe of as much as $1.8-billion (U.S.).
“We are realistic about our expectations in the near term,” he said to reporters at the company’s Detroit headquarters. “Therefore, we must scale our operations to meet expected demand. I don’t think we’re being foolish about our projections in Europe over the next couple of years. In fact, I would say we’re being brutally honest with ourselves.
“We know we’re not going to get profitable overnight, but if we can manage our cost structure so we reduce our losses by a third to a half for this year, that would be a good first step to a goal of being profitable by mid-decade,” he added.
GM is struggling to stem years of losses in the depressed and highly competitive European market where its core brands are Opel and U.K.-based Vauxhall. It has made inroads in restructuring its European operations, including announcing plans to close its assembly plant in Bochum, Germany. Mr. Akerson said he is not yet satisfied with GM’s current position.
“We’re going to make our best efforts to achieve break-even by virtue of matching our cost structure with our likely revenue flow,” he said.
“That is the – as they say in the U.S. – the $64,000 question,” he added. “Are we going to get it right? Are we going to be too optimistic? Are we going to be too pessimistic? That will play out in the next couple of years.”
In the short term, however, the news doesn’t look good in Europe, Mr. Akerson said.
“We see the market weakening actually in Europe right now. Germany looks like it could be slipping into recession.”
As part of its efforts to cut costs in Europe, GM announced an alliance last February with French auto maker PSA Peugeot Citroën that is aimed at saving $2-billion in costs split evenly between the partners. The companies have announced purchasing and logistics deals as well as plans to combine production on three vehicle platforms.
Mr. Akerson said he was optimistic about the alliance, despite its failure to reach a deal on a fourth shared vehicle platform, giving it a rating of nine on a 10-point scale. He added that GM sees potential opportunity for further co-operation between the partners in Russia and South America, and he still saw the alliance as a “net positive” for both companies.
Overall, Mr. Akerson said 2012 was solid and he was cautiously optimistic about this year, adding he hopes GM can achieve an investment-grade credit rating in 2013.
He believes global auto sales this year will increase 2 per cent to 82 million vehicles. Mr. Akerson said GM sees U.S. sales finishing between 15 million and 151/2 million vehicles, South America flat to slightly up, and the rest of international operations, including China, where GM is a market leader, up about 5 per cent.
He wants to see all five of GM’s business units post profits or break even by mid-decade, and he wants the auto maker’s profit margins to be among the industry’s best by roughly 2015.
GM expects new models, including its redesigned full-size pickup trucks going on sale in the second quarter, will help it make modest share gains in the U.S. market this year, Mr. Akerson said. But he added that the government’s exit of its stake in GM was critical to comforting investors that the auto maker has turned a corner since its federal bailout in 2009.
The U.S. Treasury sold part of its stake in GM to the auto maker last month, reducing the government’s stake to about 19 per cent.
Treasury plans to exit the rest of its GM stake over the next 12 to 15 months, a move that will all but lock in a multibillion-dollar loss for the government.
The GM sale increased the proceeds that Treasury has recovered to $28.6-billion of the $50-billion bailout GM received. With $20.9-billion left from the original bailout, the government would have to sell its remaining shares at an average price of $69.72 to break even.
Mr. Akerson, asked how long he planned to remain as CEO, said he plans to be at the company at the same time next year.