The management of General Motors Company’s (GM) European arm, Opel, will present a business plan to its supervisory board late June regarding its operations. The unit is under pressure from its parent company to mitigate continuous losses.
Opel is also in a dilemma about closing its factory in Bochum. The plant, located in the Ruhr region, has been devastated by coal mine closures. It is likely to shut after the company decided to manufacture the next generation of its popular Astra compact in Ellesmere Port in Britain and Gliwice in Poland at lower wages.
However, Opel’s chief executive officer, Karl-Friedrich Stracke, stated that the company would honor the labor agreement valid through 2014. But he could not ensure whether jobs will be safeguarded after 2014 at the plant.
A few months back, Opel revealed that it expects to report an operating loss of €1 billion ($1.3 billion) in 2012 due to fewer car sales than anticipated. The unit expects to sell 1.4 million vehicles in 2012, which are about 100,000 units less than the earlier projected sales.
In order to reverse the 12 years of losses in Europe (totaling more than $12 billion), particularly from the Opel brand, GM has recently formed a global alliance with PSA Peugeot Citroen (PEUGY). The pact will help both the automakers reduce at least $2 billion in costs.
The present Euro-zone financial crisis has affected the operations of many global automakers, especially GM and Ford Motor Co. (F). Both automakers have a significant exposure to the market.
Car dealers in Europe are trying very hard to entice consumers with the help of steep discounts and other sales promotions, which would put downward pressure on their margins.
Last month, the European Automobile Manufacturers’ Association or ACEA reported a 6.5% fall in car sales to 1.06 million units as consumers stayed away from showrooms on the back of a weak economy triggered by the sovereign-debt crisis in the Euro-zone.
Most major markets recorded a double-digit fall in new car registrations in the continent during the month, except Germany and the U.K. GM posted an 11.1% fall in sales to 85,493 units driven by lower Opel/Vauxhall (16.9%) and GM brand (50%) sales, while Ford saw an 8.3% drop in sales to 79,223 units.
GM, a Zacks #3 Rank (Hold) company, reported a $100 million fall in profits to $1.6 billion in the first quarter of 2012 from $1.7 billion in the same quarter of 2011, before special items, due to lower profits from its European operations.
On per share basis, adjusted profits were 93 cents during the quarter, down 2 cents from the first quarter of 2011. However, it exceeded the Zacks Consensus Estimate of 84 cents. Adjusted earnings before interest and taxes (:EBIT) dipped to $2.2 billion in the quarter from $2.0 billion in the year-ago quarter.
Revenues in the quarter went up 4% to $37.8 billion on a 3% rise in unit sales to 2.3 million vehicles globally. It was higher than the Zacks Consensus Estimate of $36.4 billion. The automaker occupied a worldwide market share of 11.3% during the quarter, compared with 11.4% a year-ago.Read the Full Research Report on GM
More From Zacks.com