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Mohatarem reaffirms automakerrsquos outlook for GM in Europe
<p><strong>Mohatarem reaffirms automaker&rsquo;s outlook for GM in Europe.</strong></p>

Euro-Car Flood Possible After Brexit, GM Says

Mustafa Mohatarem stops short of providing a forecast for the U.K. and Western Europe, choosing instead to &ldquo;let the dust settle&rdquo; before arriving at any conclusions.

DETROIT – General Motors Chief Economist Mustafa Mohatarem expects European OEMs to dump excess inventory into the U.S. market if car sales on the continent slump after a popular vote in the U.K. to exit the European Union.

“You will see some diversion of product to the U.S.,” Mohatarem says of last week’s surprising Brexit vote, which prompted a sell-off in global markets and sparked fears Europe could slide back into a recession it has been clawing out of since 2008.

It has led some auto analysts to forecast a nearly 10% decline in new-vehicle registrations in the U.K., while sales in Western Europe are seen dropping after eking out gains last year.

According to Mohatarem, European OEMs probably will not curtail production if those forecasts prove correct. Instead, he says, the extra inventory could flow to the U.S. much as it did during the height of the Great Recession.

However, do not expect German, Italian and British automakers to employ steep discounts to move the excess sheet metal, Mohatarem says.

“The Fed will keep (interest) rates low,” he says of the U.S. Federal Reserve’s record low policy rate of between 0.25% and 0.50%.

Prior to Brexit, speculation hummed that the nation’s central bank would move the rates higher because the near-zero rates are not providing expected economic stimulus.

Mohatarem stops short of providing a forecast for the U.K. and Western Europe, choosing instead to “let the dust settle” before arriving at any conclusions.

“Give it a week or so,” Mohatarem tells WardsAuto. “The stock markets already are settling down.”

GM in recent days also has reaffirmed expectations for its European unit, Adam Opel, to break even this year or become profitable after billions of dollars in restructuring to break from red ink for the first time in 15 years.

GM operates two assembly plants in the U.K., building Vauxhall and Opel Astra small cars for local and export markets in Ellesmere Port near Liverpool and vans for the brands in Luton north of London. Combined production at the facilities last year reached 153,189 units. About 13.5% of global Vauxhall/Opel production comes from Ellesmere Port and Luton.

According to WardsAuto data, sales of Vauxhall-brand vehicles in the U.K. grew 2.3% last year to 311,654 units from 304,705. Total GM sales in Europe last year fell 7.7% to 1.17 million from 1.26 million, but through the first five months of this year are tracking ahead 5.7% to 410,469 from 388,356.

Mohatarem says it remains unclear how GM production in the U.K. might be affected by Brexit, because new trade agreements must be drawn. As for sales, he does not see credit tightening for buyers since central banks in the U.K. and Europe have pledged to meet liquidity demands.

“My guess is the auto industry is so important to the (European) economy, not much will change,” he says.

If the British pound continues to weaken against the U.S. dollar, an exchange rate that already has reached a record low, U.K. household income will fall and products such as autos will become more expensive in the near term, Mohatarem says. Longer-term, a weak sterling would make production in the region less costly.

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