Is General Motors Company (NYSE:GM) rethinking its plan to turn around its long-broken European operation?
A week after GM said that it was likely to stay the course with its slow-moving effort to turn around money-losing German subsidiary Opel, hints have emerged that further cuts may be in the cards.
That could be good news for GM’s stock price.
Losses continue to mount as market share erodes
In a letter to Opel employees on Tuesday, GM Vice Chairman Steven Girsky revealed that the company is pushing for “further considerable” cuts in cost in talks with Opel’s German union leaders. Those talks are set to resume on Tuesday amid European market conditions that Girsky described as “disastrous” and “catastrophic” in the letter.
Catastrophic is probably the right word, especially for GM. While the overall European auto market dropped 8% last year, to its lowest sales levels since 1995, Opel’s sales dropped 16% – leading to a significant loss in market share.
Both trends have been worsening in recent months, with GM’s European sales falling a whopping 27% in the month of December in the face of a 16% overall market decline. Severe recessions in many European nations have discouraged many consumers from car-shopping – and the few that have been shopping have been drawn to the steep discounts offered by some automakers, including Volkswagen and Fiat.
Opel, which has lost over $17 billion since 1999, has understandably been reluctant to slash prices. That’s a position that probably makes good sense in the long run, but which is costing it sales and market share now.
That means that big losses are likely to continue for a while – unless more drastic action is taken. And Girsky’s Tuesday letter suggests that more drastic action may be in the cards.
GM’s restructuring plan may not go far enough
While Ford Motor Company (NYSE:F) has announced several plant closings as part of its own efforts to stem European losses, GM has so far announced just one – and that one, at its Bochum, Germany, factory wasn’t expected to happen until the end of 2016.
Meanwhile, Girsky said last fall that GM would make up lost ground with incremental restructuring efforts, a slew of new products, and cost savings via a tie-up with French automaker PSA Peugeot Citroen .
Analysts have been critical of that plan, saying that GM underestimates the risk of further market share declines – a criticism that looks more valid with every passing month. But now GM is saying that it may accelerate the plan to close Bochum and eliminate its 3,000 jobs. Girsky’s letter said that Bochum could close at the end of 2014, the earliest date allowed by existing labor agreements.
That would certainly help GM attain its goal for Opel of reaching break-even by mid-decade – if it comes to pass. But even that is far from certain.
Turning up the heat on Opel’s unions
The plan to move up the Bochum closing is likely just one of a long list of concessions GM would like to get from Opel’s union in the current round of talks, and it’s important to emphasize that none of those concessions is a done deal at this point.
German law gives unions great power, and the sensitivity of German political leaders to the possibility of job losses means that GM has to tread carefully. Bochum would be the first auto factory to close in Germany since the 1940s, and even with four years’ warning the earlier plan to close it after 2016 caused much consternation.
Still, as market share continues to erode and big losses continue to mount, it’s becoming clear to investors that GM will need to do more to transform Opel into a profit center. The good news is that Girsky’s letter suggests that it’s clear to GM’s leadership as well. Can the union be convinced to agree? Stay tuned.
The article Is GM Turning up the Heat in Europe? originally appeared on Fool.com.
Fool contributor John Rosevear owns shares of General Motors and Ford. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors.
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