Where Will GM Find Growth in Europe?
General Motors has already lost a fortune in Europe.
Chronic problems at GM's German subsidiary, Adam Opel AG, have cost the giant automaker $18 billion in losses since 1999. Another $2 billion or so in losses is likely in 2013.
GM CEO Dan Akerson has been determined to overhaul Opel and turn it into a sustainably profitable business for the long haul. One part of his plan to put Opel back in the black involves finding ways for Opel's sales volumes to grow.
But how will Opel find growth when new-car sales in Europe are at their lowest levels in decades?
Looking east for big sales growth
In an interview that ran over the weekend, Akerson told German newspaper Bild am Sonntag that Opel will push exports to Turkey and Russia in an effort to find new growth for the old German brand.
While the mature car markets in most of Europe are mired in recession, Turkey and Russia represent markets that aren't yet fully mature - and in the case of Russia, one that could see significant growth in the next few years.
Akerson, echoing recent comments from Ford executives, told Bild that "in a few years time" Russia's new-car market could be bigger than Germany's, currently Europe's largest. That's why GM, like its global-minded rivals Ford and Volkswagen , is looking to establish a strong foothold in Russia while the market is still in its early growth stages.
But growth in Russia's car market has been slow recently, with sales flat so far in 2013. Russia doesn't yet have the infrastructure to support mass ownership of cars. Many roads and bridges are poorly maintained. Lots of Russians still find it easier to take a train to work, as they have for years. But Russia's vast natural resources wealth means that the potential for the country is still huge.
For Opel's sake, GM is certainly hoping that that potential starts to be realized soon, because it's unlikely to find much growth in its traditional markets any time soon.
Why Europe's car industry is in such trouble
When it comes to new-car sales in most of Europe, things are really bad right now.
European new-car sales hit a 17-year low in 2012, and most automakers doing business in the region have seen further declines so far in 2013. Europe's car industry has big problems, starting with this one: Deep recessions driven by government austerity programs in many European nations have led consumers to shy away from new-car purchases for the time being.
The problems go beyond that, of course. As with the Detroit automakers last decade, Europe's automakers have too many factories, too much bureaucracy, and too-rich deals with powerful labor unions. The cars and trucks that they are selling aren't enough to pay the costs of an infrastructure built when sales were higher and expectations were more optimistic.
Ford, Europe's second-biggest-selling automaker after VW, announced its own overhaul plan last year. In typical Ford style, it's well-thought-out, complete, and decisive: Ford is closing factories, cutting staff, and bringing new categories of vehicles (like SUVs) from its global portfolio to Europe for the first time in a bid to increase market share.
Ford's success in turning around its North American operation give its European plan big credibility. It should work out well for the Blue Oval.
But for GM, the challenge of fixing Opel has proven to be a tougher nut to crack. Akerson began his push to fix Opel late in 2011 when he moved to put several of GM's top global executives on Opel's board. Work continued throughout 2012, with management changes and product enhancements.
Now, Opel has a new CEO, VW veteran Karl-Thomas Neumann, and a deal with its troublesome German labor union that should lead to much-needed savings. Akerson announced last week that Opel would receive $5.2 billion from GM through 2016 to finance a series of new products.
And Opel has plans to boost its presence, and hopefully its sales, in places like Russia. Will it be enough to end more than a decade of losses? We'll find out.
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The article Where Will GM Find Growth in Europe? originally appeared on Fool.com.Motley Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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