GM Gets Schooled by Ford in Europe
It has already been a rough week for the auto business in Europe.
Volkswagen (NASDAQOTH: VLKAY.PK) reported a steep drop in profits as sales and margins have fallen hard in its home markets.
French automaker PSA Peugeot Citroen (NASDAQOTH: PEUGY.PK), in dire straits, got a bailout from the French government.
Ford is taking bold action, while Peugeot is in very rough shape. So naturally, General Motors (NYS: GM) , which lost $361 million in Europe last quarter and urgently needs to close some factories at least as much as Ford does, announced on Wednesday... a deal to make cars with Peugeot.
Is GM fiddling while Rome burns?
GM and Peugeot announced on Wednesday that the alliance they formed back in February has taken a new step forward. The two companies jointly will develop and produce several vehicles on four shared platforms, they said in a statement.
The first of these vehicles will be launched in 2016, according to the statement, which "confirmed" GM and Peugeot's "synergy target" of $2 billion in annual savings within five years. There's also some movement on the companies' much-talked-about joint purchasing agreement, which makes somewhat more sense if they'll be producing cars that actually have parts in common. (Most cars made by different companies don't.)
Now, there's nothing wrong with this deal, exactly - assuming that Peugeot is still in business in 2016, of course. And the somewhat cryptic line at the end of the statement that says that the companies are "exploring other cooperation opportunities" leaves the door open to all sorts of possibilities.
But speaking as a GM shareholder, it's starting to seem like somebody's not paying attention.
Harsh reality requires urgent action. Doesn't it?
Maybe it's the contrast with Ford that makes this announcement seem so jarring. Ford lost even more money than GM in Europe last quarter, losses that seemed to catch the Blue Oval's managers somewhat by surprise. But they did something about it: CEO Alan Mulally and his team attacked the problem the way they have for several years now, which is to say, they huddled, came up with a plan that made sense, and started executing it.
First, Ford announced a major product line revamp in Europe, saying that it would add existing products from other regions (like the Mustang and the Edge SUV) to expand its offerings to European customers. That should add some sales, at minimal cost. Now, it's announcing plant closings, with no dithering with the unions, no weeks of dropping hints to the press, no fired executives. In Ford's world, the right way to do things is to send its European chief to break the news to the union leaders and explain the company's reasoning, and then announce it.
In that order. Plain and simple.
So why hasn't GM taken similar action?
Is there a deeper plan afoot?
GM was throwing around a plan to close a plant in Bochum, Germany, earlier this year - but the plan would have kept the factory open until the end of 2016 to placate union leaders. Another part of its plan called for GM's long-troubled German subsidiary, Opel, to increase its sales in markets like Russia and China - but that was followed a few days later by news that the executive responsible for that idea had been sacked.
So what's your plan now, GM?
It's still possible that there's a method to GM's seeming madness. CEO Dan Akerson may not be an auto-industry veteran, but he is a deal-making expert, with extensive experience in telecom and private equity. GM's dance with Peugeot might be leading toward a solution to GM's Europe mess that doesn't involve fixing Opel so much as offloading it.
Done right, that could end up being a very smart solution - at least, from GM's perspective. Is that what's going on? We'll have to wait and see.
But as of right now, it sure looks like GM has been outdone by Ford once again.
GM's stock has risen a bit recently, but it's still not far from its post-bankruptcy low. But if Akerson can harness GM's potential, deal with Opel, and get the Feds to exit honorably, then GM's stock could have significant upside over the next couple of years. However, investors need to stay attuned to fluctuating demand and the ability of automakers like GM and Ford to respond in unison. For starters, one of our top equity analysts has compiled a premium research report with in-depth analysis on Ford's competitive edge. To find out what could propel Ford down the road, click here for instant access to this premium report now.
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