Why GM And Ford Face A Tough Uphill Battle In Europe

by Micheline Maynard

For almost two years, General Motors GM has been trying to get its house in order in its European operations. Ford’s turnaround effort there is much more recent. But both companies share an uncomfortable reality:  the uphill battle in a wildly uncertain market.

GM said today that it lost another $175 million in Europe, adding to its $18 billion-dollar pile of losses in that sector over the last decade. Overall, GM’s first-quarter results were down from the year-ago quarter.

To be sure, GM’s first-quarter loss was an improvement from a $294 million European loss a year ago. But it should be, given that GM has been working on a European restructuring plan for the past year, and the situation has been front of mind for the biggest American car company.

GM said the reduced loss shows its cost cutting plan is starting to bear results, according to Bloomberg . “The results that you see in the first quarter are a function of us executing” the European plan, GM’s Chief Financial Officer Dan Ammann told reporters in Detroit. “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 macro-economic environment.”

Indeed, Ammann said it was “too soon to call the bottom” in Europe, where unemployment is 20 percent plus in many countries. And, GM is being cautious in its long-term outlook for Europe, projecting break-even levels only by mid-decade.

Ford touched on the uncertainty over Europe said last week that it lost $462 million in Europe, and couldn’t predict when the situation might get better. It still expects the company will lose $2 billion in Europe 2013, a prediction that rattled investors after Ford deepened its loss forecast earlier this year.

Ford’s chief financial officer, Bob Shanks, says the company hopes that the industry might stabilize towards the end of 2013, or early 2014.

Remarks from the two CFOs should be seen as a sign that the companies expect an uphill battle in Europe for the time being. On Monday, Fiat said it expects European auto sales to fall between three to five percent this year, although it isn’t changing its financial targets.

European auto sales fell 10 percent in March, and Automotive News Europe says the market is headed for its lowest annual totals in 20 years.

The economy is the most important factor, but not the only one. Beyond that, both American auto companies are facing the stiff competitive challenge posed by Volkswagen, as well as the determined small car plans from luxury carmakers BMW and Mercedes-Benz .

All those worries ought to be enough to keep the big American players focused on their turnaround plans, and worsening market conditions always mean those plans may have to be revised again.

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