GM, Ford aim for profitability in Europe despite economic gloom
FRANKFURT -- General Motors Co. and Ford Motor Co. are moving to break even or turn a profit in the market this year amid the continent's economic problems, executives said.
"This time two years ago our operations in Europe were in severe difficulty, losing a lot of money," Nick Reilly, president GM Europe, said at the Frankfurt motor show. "Two years later, the atmosphere is totally different."
GM is trying to end losses in Europe, which have totaled $14.5 billion since 1999.
Ford's surprise $51 million pretax loss in Europe in 2010's fourth quarter began a 40 percent slide in its share price this year through yesterday.
Pretax profit in Ford's European operations plunged 45 percent to $176 million in this year's second quarter.
"Wall Street expects you to be making profit all over the world, including Europe," Rebecca Lindland, an industry analyst with IHS Automotive, said in an interview at the auto show.
The efforts by GM and Ford come as Europe has become entangled in concerns about sovereign debt, including a possible default in Greece which has imperiled the stability of the euro.
"We're worried, yes," Reilly said. "Having said that, so far we have seen no impact on our order intake."
GM's goal for Europe is to be "profitable by just better than break-even before restructuring charges," Reilly said. "In 2012, we won't have those restructuring charges. They're mostly done. We'll get the full 12-month benefit of the restructuring that we've done."
Those operations include Opel, which should turn a "healthy profit" next year, Karl-Friedrich Stracke, head of Opel and Vauxhall told reporters.
The company's European operations earned $102 million before taxes and interest in the second quarter following a first-quarter loss of $390 million, including a writedown of goodwill.
Without that cost, GM's European operations would have generated a first-quarter profit of $5 million. GM Europe sales increased 7.7 percent to 912,000 vehicles during the first six months from the first half of 2010. That increased its market share in Europe to 8.8 percent from 8.7 percent. The gain was largely driven by sales increases in Germany and Russia.
GM's European changes
The company, which went through a U.S. bankruptcy reorganization in 2009, also revamped its European operations, including paring production capacity by 20 percent, closing a plant in Belgium and cutting 8,000 jobs.
The U.S. restructuring has helped GM's balance sheet in North America, which drove much of its second quarter profit of $2.52 billion as sales increased by 19 percent to $39.4 billion. "We don't have anything like that here," Reilly said, explaining why GM's turnaround in Europe is one year to 18 months behind its U.S. efforts. "You either liquidate or you get through it."
GM expects the total Europe market to be 19.2 million or 19.3 million this year with sales reaching 19.6 million next year, he said. The automaker has been unable to raise prices in Europe to compensate for labor rates in Germany, its primary manufacturing center on the continent.
While Ford has had profits in the region, it has seen its business slow in Europe. Ford's operating profit margin in Europe fell to 2 percent in the second quarter, from 4.3 percent a year earlier. The company has said its goal for this year is to have a global automotive operating margin of 7.3 percent.
"We expect to be profitable this year," Chief Financial Officer Lewis Booth said, repeating an earlier forecast.
Ford's sales in its 19 main European markets fell 2.2 percent this year through August and its share of sales in the region declined by 0.3 percentage points.
Chief Executive Officer Alan Mulally is trying to use fuel efficiency and technology including voice-activated stereos to command more respect and cash from car buyers in Germany, Europe's largest market.
Ford has doubled the size of its stand for the Frankfurt show. The company's European results have been erratic the past three quarters. After the fourth-quarter loss,
Ford's first- quarter European profit more than doubled to $239 million. Then came the second-quarter's 45 percent decline. Ford of Europe finished the first half of 2011 with $469 million in Europe profit before taxes, up from $429 million during the first half last year.
"Europe is, as everyone knows, a very competitive environment," Booth said.
Source: BloombergContact Automotive News