GM makes progress on Europe turnaround
General Motors is making progress in restructuring its money-losing Opel/Vauxhall unit in Europe but there is still a long way to go.
That was the verdict of analysts after GM reported Thursday that its first-quarter pretax loss in Europe narrowed to $175 million from $294 million a year earlier.
GM is outpacing U.S. rival Ford Motor Co., which saw its pretax operating loss in Europe for the quarter widened sharply to $462 million from $149 million the year.
GM cut $300 million in costs in the region and was able to keep the pricing on its vehicles unchanged, both better than anticipated. The Europe results suggest that GM's cost cuts are starting to offset declining industrywide sales, which are heading toward 20-year lows.
"The results that you see in the first quarter are a function of us executing" the European plan, Chief Financial Officer Dan Ammann told reporters on Thursday.
Ammann said GM is sticking to its goal of breaking even in Europe by mid-decade, although he doesn't see any signs of a rapid turnaround in the region. "It's too soon to call a bottom in Europe," he said.
"Obviously there are things that we control and we feel quite good about the progress we're making on those. There are things we don't control, such as the European macroeconomic environment," he said.
GM lowered its costs by about $200 million during the quarter through engineering and fixed cost reductions and benefited from some timing items that "amplified the cost savings you're seeing there and we'll see some normalization as we move through the year," Ammann said. "We are in aggressive cost-control mode in Europe," he said. "It's a very tough market environment."
Ammann said GM will see cost savings in Europe slow as the year progresses.
During the quarter, revenue in Europe fell to $4.8 billion from $5.3 billion during the same period a year earlier as sales fell, GM said.
Morgan Stanley analyst Adam Jonas said in a research note that it was the first time GM's Europe unit topped Wall Street expectations in nearly two years and the first year-over-year improvement in results in five quarters.
New models such as the Opel Adam minicar and Mokka SUV have helped GM to slow the rate of sales decline in Europe. Opel/Vauxhall sales fell 8 percent in the EU and EFTA markets in the first three months in a total market down nearly 10 percent, according to industry association ACEA. Ford's sales declined by 20 percent in the same period.
GM in the fourth quarter took a $5.2 billion writedown of European assets to reflect the tougher conditions, forecasting that the reductions would boost 2013 results by $600 million. The asset impairment was a one-time special item that reduced its profitability in that period.
Ford determined its business in Europe was not impaired, meaning it will have to book accelerated depreciation over the next several quarters for the three factories it has slated to close in Europe by 2014.
Because of the different approaches, Ford's "pretax profits are disadvantaged in the near-term," Peter Nesvold, a Jefferies Group analyst, wrote on April 25.
To stem European losses, GM cut $300 million in spending and 2,600 jobs by the end of 2012 and hired Karl-Thomas Neumann, a former head of Volkswagen China, to head its operations in the region. The company plans to cut $500 million in annual costs in Europe during the next three years.
GM ended the quarter with 36,000 employees in Europe, the company said. The automaker will reduce capacity in Europe by closing a German factory in Bochum.
GM also seeks to improve results in the region through an alliance with PSA/Peugeot-Citroen.
Christian Mayes, an analyst with Edward Jones & Co. in St. Louis, said: "They still have a ways to go to prove to investors that GM's approach in Europe has changed but some of the cost-cutting appears to be bearing initial fruit. It's just too early to say if this is a longer-term trend, or if there's more of a hard slog ahead for taking costs out of Europe."
Ford officials have said the European auto industry may see some stabilization toward year-end or early 2014. Ford expects to lose $2 billion in Europe this year as it faces high structural costs stemming from its efforts to fix its business.
The automaker is closing its vehicle assembly plants in Genk, Belgium, and Southampton, England, and a stamping plant near London. Ford has deferred by a year the introduction in Europe of the Mondeo mid-sized car, which is built in Genk.
The plant closures will eventually save Ford $500 million a year, Morgan Stanley's Jonas said.
Read more: http://www.autonews.com/article/20130503/ANE/130509952#ixzz2SOxg4m3f
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