The uphill slog that has been the financial turnaround for General Motors in Europe appears to be cresting toward break-even for the year, a positive development for the automaker as economic troubles in Brazil intensify.
“In Europe, we broke even in Q1 and we are on plan to break even for the calendar year,” GM Chairman and CEO Mary Barra says in a conference call to detail the automaker’s $2 billion first-quarter profit.
GM lost $200 million in Europe during the same period last year, and the automaker has not been in the black there in more than a decade. But a $5.2 billion, new-product and cost-cutting plan launched in 2013 appears to be taking hold in a market showing signs of life after years of depressed sales.
Sales in Europe group grew 5% in the first quarter, while deliveries by GM’s Adam Opel unit jumped 8.4% to more than 300,000 units. The brand’s market share grew 0.2 percentage points to 6% vs. like-2015.
Barra calls the redesigned Astra small car a key component of Opel’s resurgence. More than 150,000 orders have been placed for the car, named Europe’s “Car of the Year 2016.” Opel now is priming the pump for the launch of the Astra Sports Tourer and the Mokka X small CUV. The redesigned Corsa small car also is gaining traction, GM says.
“We are very pleased with the break-even result in Europe,” Says GM Chief Financial Officer Chuck Stevens. “The success of Opel’s recent launches has contributed to increased wholesales and related topline growth in the region.
“We’re also very focused on cost and we are utilizing tools such as operational excellence throughout the region, and you are seeing some of the results,” he says.
However, Stevens admits the threat of the U.K. leaving the European Union has created a fresh headwind in the region, because it weakens the British pound and negatively affects the automaker’s exchange rates. The U.K votes in June on whether to remain a member of the 28-country bloc.
“That’s the biggest risk that we have, amongst many, that we are working to manage through,” Stevens says.
South America is trending in another direction. Always difficult to manage because of the historically topsy-turvy Brazilian market, which is headed toward its worst economic trough in 25 years, GM sales in the region plunged 25.8% to 133,243 in the first quarter.
However, the automaker still managed to narrow its losses in the quarter to $100 million from $200 million year-ago. GM recently trimmed both labor costs and production output in the region.
“Macroeconomic conditions remain challenging with no near-term recovery in sight,” Stevens says of South America. “The results of our restructuring action over the past year contributed to improved results this quarter versus year-ago.”
Stevens calls the outlook for South America difficult to forecast because of Brazil’s trouble, and the automaker says its planned $1.62 billion investment in the country remains intact for now. GM President Dan Ammann in February said the automaker would reconsider the outlay if conditions do not improve.
“We’ll continue to take action to mitigate the negative headwinds that are impacting the industry and GM’s results in the region,” Stevens says. “We are well-positioned to take advantage of the economic recovery when it materializes.”
Brazil once ranked among the world’s top five markets and GM remains bullish on its future potential – the automaker operates five manufacturing facilities in the country – but executives have said it needs to adopt business-friendly fiscal policies.
