GM to spend $1 billion to revive its operations in Europe

Article by Christian A., on February 20, 2012

General Motors Co. has to spend a minimum of $1 billion in Europe so that its operations in the region could be revived after having suffered increasing losses here, according to estimates by three analysts. In last Friday’s note to investors written by lead author Joseph Spak, an analyst at RBC Capital Markets in New York, he said that the cost would probably be steep and the savings won’t be immediate.

RBC estimates that for this year, European restructuring expenses will go as high as $600 million in 2012 and $400 million in 2013.

Last Thursday, GM reported that its European business, which includes Opel/Vauxhall, posted a $747 million loss before interest and taxes last year after reporting a loss of $1.95 billion in 2010. GM’s losses in the region have amounted to $15.6 billion since 1999. Four analysts said that for this year, there will be a $1.2 billion deficit. Brian Johnson, a Barclays Capital analyst, said that if 4,000 jobs are cut, GM’s European restructuring costs could total $1.2 billion.

Johnson’s note to investors indicated that with the likelihood that GM will make up lost market share and boost capacity, he thinks that a restructuring of the unit would “provide a tailwind for the stock.” A note from Buckingham Research Group in New York estimated GM's revamp cost to be around $1 billion. Analyst Joseph Amaturo was the lead author of this note.

Last November, GM dropped its forecast that it will achieve a break-even in Europe as the outlook in the region got worse. GM’s production in Europe dropped by 20% during the fourth quarter and revenue declined by 9.2%. During a conference call with analysts last Thursday, CEO Dan Akerson said that in Europe, it has to “match capacity with demand, and demand has been falling." [source: BusinessWeek]

Topics: gm, europe

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