GM Exec: Loan Debates Suggest Auto Industry More Highly Regarded in Europe

DETROIT – It’s clear from how various governments have reacted to the global recession that Europeans value their auto industry more than Americans do, says Carl-Peter Forster, General Motors Corp.’s top-ranking executive on the continent.

“Europe has a very different attitude towards its automotive industry than the U.S.,” Forster tells Ward’s during an interview at the recent North American International Auto Show here. “Much more positive.”

After the U.S. recession went global late last year, European auto makers found themselves facing the same credit crunch as GM, Ford Motor Co. and Chrysler LLC. Although in Europe the situation resulted more from banks hiking interest rates sky-high than simply refusing to lend, it has had the same effect in pinching new-vehicle sales.

According to the latest data from Ward’s, Western Europe sales slid 25.8% in November, leaving the market’s 11-month total off 7.9%. GM, which sells two-thirds of its vehicles in Western Europe, delivered more than 2 million units in the region in 2008 for the third consecutive year, but overall sales dipped 6.5%.

U.S. light-vehicle sales finished 2008 down 18.0%, with GM North America deliveries sliding 21.1%.

But while executives from the Detroit Three faced two rounds of painful Congressional hearings in a bid to secure taxpayer-funded bridge loans to stave off bankruptcy – GM and Chrysler needed cash immediately while Ford sought an emergency line of credit – European auto makers encountered a much smoother path to government support.

GM’s Carl-Peter Forster says autonomous, self-supporting Saab must precede divestiture talk.

For example, GM’s Adam Opel GmbH unit conducted just one top-level meeting with the German government before receiving a €2 billion ($2.6 billion) pledge of support. In the U.S., lawmakers failed to pass a rescue package, leaving an outgoing President Bush to authorize loans totaling $17.4 billion in late December.

Forster says the relative ease with which European auto makers secured backing mostly boils down to dollars and cents. Put simply, Europe’s auto makers needed a much smaller bailout.

Nonetheless, he also notes Europeans have a different attitude toward the auto industry, even as a contentious battle between car makers and environmentalists rages over lowering carbon-dioxide emissions, much like the fuel-economy debate in the U.S.

“Clearly, we had discussions about CO2 levels and were criticized about not moving fast enough, but to a much lesser extent than the U.S. So the overall attitude is a positive one,” he says.

Forster traces the level-headedness back to government policies, such as the high gasoline tax and credits for buying low-emissions vehicles, which place consumer demand and auto maker product offerings in lockstep.

“You are guiding consumer buying behavior,” he says of the policies. “I don’t see much of that happening in the U.S.”

Forster also suspects many Americans do not understand as acutely as Europeans an auto industry’s importance to a nation’s economy, technical development and defense.

“The tonality of the discussion was perhaps less hostile,” he says of Opel’s appeal for government assistance. “And less probing and less difficult. The discussion with government is considerably easier in Europe than it is in the U.S.”

In return for the U.S. loans, GM and Chrysler must meet a pair of restructuring deadlines and come under scrutiny from a still-to-be-appointed national car czar. No such terms accompany requests from European auto makers, but companies seeking support must prove long-term viability, and the government money only can be used to develop emissions-reducing technology.

The actual loans come from the European Investment Bank, not individual federal governments. In the case of Opel, Germany has chosen to guarantee up to $2 billion in funding from the EIB.

“The European Union puts pretty strict, tight rules on you,” Forster says, adding that a framework has been hammered out between Opel and the German government, but no money has been received. He says Opel is examining which products will qualify for the loans.

However, Forster says additional talks are under way within the German government about a E100 billion ($130 billion) rescue package for all of its industries, as businesses needing to make capital investments face the same high-interest rates as consumers. No decisions have been made on the funding package.

Forster also says any divestiture of GM’s struggling Saab division hinges first on making the Swedish unit an autonomous, self-supporting business. GM placed Saab under strategic review when it submitted a viability plan to Congress with its loan request, but Forster says the unit remains too closely linked with GM for a quick sale.

“Contrary to what you read in the newspapers, no (divestiture) process has been started,” he says. “We’ve had basically one interested party show up at our doorstep and we’ve said, ‘Look, we’ve got to create a salable unit and then we’ll talk to you.’”

For example, Saab needs cash to fund two upcoming product programs – the new 9-5 large sedan and 5-passenger 9-4X cross/utility vehicle – and it’s unlikely GM could afford the investment. The Swedish government has extended an offer to help Saab retool for more fuel-efficient vehicles, but it wants no part in ownership, Forster says.

Forster also doubts GM will have built an autonomous Saab before March 31, when it must have brokered concessions from key stakeholders to ensure long-term viability or face recall of the U.S. loans.

“We’d like to be able to tell the U.S. government we believe we can limit our exposure to Saab to a number ‘X’ by doing these steps,” he says. “Iif the business is autonomous and fully funded, there’s no recourse to GM and there’s no immediate time pressure to sell it, which is positive for General Motors and positive for (Saab). We don’t have to just dump it.”

Priorities regarding Cadillac in Europe have shifted, as well, Forster reports. GM wants to establish Cadillac as a premium brand overseas and currently markets a number of models under the Wreath & Crest in Western and Eastern Europe. But they are generally oversized for the markets.

The Cadillac CTS Sport Wagon will give the auto maker a truer wagon entry when it arrives later this year, but a CTS coupe with a new diesel engine planned exclusively for the region has been delayed.

“We need models suitable for the European market and the European environment,” Forster says. “And in the current environment, pushing Cadillac is not priority No.1.

“Currently, priority is for core brands, Opel and Chevrolet, and Cadillac is certainly a lower priority.”

As such, Forster reports modest success in moving the price point higher for Opel products, which allows the Chevrolet brand to slide underneath, an effort that early last year contributed to the first profitable quarter at GM Europe in some time (through the first nine months of 2008, GM Europe’s loss widened to $938 million from $92 million in like-2007, while revenue grew to $28.0 billion from $26.8 billion).

The launch of the all-new Opel Insignia – the first product based on GM’s new global Epsilon II platform – went well, Forster says, drawing 44,000 orders in the October-December period. Sales outside of Germany begin later this month.

Chevrolet, meanwhile, accounted for more than 500,000 sales in Europe last year, mostly on the strength of emerging Eastern markets, making it the fastest-growing brand in Europe.

Overall, GM Europe held share in 2008 at 9.3% of the market, compared with 9.4% in like-2007. The total vehicle market in Europe last year fell 5% to 22 million units from 23.1 million in 2007, GM says.

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