Last Thursday, GM reported that its European division had posted a US$747 million loss before interest and taxes. While that’s an improvement over the US$1.95 billion losses the company reported in 2010, in the past 13 years Opel and sister company Vauxhall have cost GM US$15.6 billion.
The European economic turmoil that is far from done makes for a bleak outlook; the estimate for 2012, based on four analysts’ predictions, is a US$1.2 billion loss for GM’s European division.
“We have to match capacity with demand, and demand has been falling,” said GM CEO Dan Akerson. Being that the company’s European production fell by 20 percent in the fourth quarter of 2011, GM is getting ready for severe cuts in Europe, even though it has so far denied it.
Restructuring may be the sole option, short of closing shop or selling to another manufacturer, but it comes at a price. And according to market experts, that price is at least US$1 billion.
New York-based RBC Capital Markets analyst Joseph Spak estimates that restructuring Opel will cost US$600 million this year and another US$400 million in 2013. As he wrote in a note to investors, “The cost is likely to be steep band the savings not immediate”.
His colleague at Buckingham Research Group, Joseph Amaturo, also forecast a billion dollar spending for GM if it wants to turn Opel and Vauxhall around.
Brian Johnson, an analyst at Barclays Capital, estimates that GM needs to cut 4,000 jobs and puts the total cost even higher, at US$1.2 billion. He added that the restructuring process will eventually, benefit its stock price.
“Given the potential to make up lost market share and improve capacity, we believe that a restructuring of the unit would provide a tailwind for the stock”, Johnson wrote to investors.
Story References: Detnews
