General Motors Co.’ second most senior executive has said the US car maker is determined to remain a “major player” in Europe despite the industry-wide crisis that has pushed its Opel/Vauxhall business into deep financial loss.
However, Dan Ammann, GM’s chief financial officer, also warned that it would be “messier and more complicated” for carmakers to resolve their excess capacity problems on the continent than it had been in the US industry’s deep restructuring in 2008 and 2009.
“We are a global carmaker, and part of being a global car maker is to be a major player in every market in the world – and Europe is a major market,” Mr. Ammann told the Financial Times in an interview, when asked whether GM was committed to keeping Opel. “So we have to have a significant presence in Europe.”
Mr. Ammann was speaking after renewed speculation over Opel’s future – including a report by Adam Jonas, a Morgan Stanley analyst, calling for GM to sell the Opel operations. The Detroit car maker came close to selling Opel in 2009, but pulled back from the sale after Opel’s financial position improved briefly and the Germany government vetoed the state aid GM was seeking for the deal.
GM’s European business made a $261m operating loss in the second quarter of 2012 compared with a $102-million (U.S.) profit a year ago.
The European loss contrasts sharply with GM’s recovery in North America, where it closed 30 per cent of capacity after restructuring through bankruptcy in 2009 and where sales have recovered sharply.
Mr. Ammann acknowledged the severity of the problems in Europe. “What you’re dealing with there is a fundamental set of industry challenges related to excess capacity, a challenging pricing environment, very low demand,” he said. “The macroeconomic backdrop is very difficult.”
GM was addressing the problems partly by seeking increased revenue through new product launches, Mr. Ammann said.
“We’ve invested a lot in the portfolio and we will continue to do so,” he said.
Mr. Ammann acknowledged the European car industry was “meaningfully unprofitable”, however.
“There’s going to have to be either some recovery in volume and/or significant adjustments to capacity and ultimately the pricing environment in order for the industry to become profitable again,” he said.
GM is in discussions with unions about closing its plant at Bochum, in Germany, after 2016. PSA Peugeot Citroën, the company’s French alliance partner, is closing one plant and cutting capacity at another. Ford Motor Co. and Fiat SpA are also both considering closing at least one plant each in Europe.
Goldman Sachs estimated this week that more than 70 per cent of Europe’s car plants were operating below the 80 per cent capacity level generally seen as the minimum for profitability.
“Everyone realises there will have to be industry-wide capacity actions ultimately to get to a profitable and healthy industry,” Mr Ammann said.
Nevertheless, Mr Ammann insisted that GM, because of its size, could eventually outstrip rivals’ profitability. Car making was a “scale business,” he said, referring to the crucial relationship between manufacturers’ sales volumes and their profitability.
“If we have the right brands and the right vehicles . . . over time there’s no reason we shouldn’t be amongst the most profitable companies in the world,” Mr Ammann said.Report Typo/Error