GM Facing Tough Choices in Europe – Part One

Europe’s car companies could be said to mirror the European economies in the sense that there’s a stark contrast between the haves and have-nots, or between the profitable and the loss-making.

Unlike the US, where all carmakers were pulled down post-2008 and some teetered on the edge of bankruptcy while others actually went into Chapter 11, European carmakers are much more of a mixed bag. And before I get comments about government subsidies, let me say this: while they have over the years detrimentally impacted the structure of the European car industry, today’s winners and losers do not split neatly down the line between beneficiaries of state largesse and not.

In stark contrast to its parent, now (free of onerous pension obligations and high union pay rates) a highly profitable enterprise, General Motors’ European operations (which includes Vauxhall in the UK and Opel in Germany) lost $747 million last year, with $562 million of that coming in the final quarter of the year and including a restructuring charge of $200 million.

It has lost money in Europe for a decade, but targeted breaking even in 2011 as talks broke down to sell the business to Magna a year back. Even so, the loss is a marked improvement from the $2 billion deficit in 2010, the Telegraph reports, but is in stark contrast to a year of record global profits for GM group, where profits surged to $9.19 billion from $6.17 billion.

Perversely, GM’s rescue plan may include the closure of Europe’s most efficient car-making plant, Ellesmere Port in the UK, because GM is prevented from closing German plants until 2014 due to union agreements — even though the Bochum plant in Germany, which has a capacity of 160,000 cars but is said to need 3,100 employees to operate, compared to Ellesmere’s 187,000 capacity with only 2,100 employees.

Continued in Part Two.