How GM Europe Lost Money and What the Company is Doing About It

By Jacob Brown | February 16, 2012
The big headline from the 2011 earnings statement released today by General Motors is the number: $7.6 billion in pure profit, the most the automaker has ever made. Debt consolidation and increased per-product profitability have once again lifted the General to its long-held position as the world's largest automaker. And with new products planned to launch over the next year—including the GMC Acadia, Buick Encore, Chevrolet Spark hatchback, Cadillac ATS, and the hotly anticipated next-gen Corvette in January—its momentum is likely to continue for some time. But while a collective "hurrah" was heard emanating from Detroit, a groan billowed from the company's European operations. GM Europe, largely led by German brand Opel, lost $700 million in 2011. GM considers it gauze on the perennial bleeding that has led to more than $14 billion lost in Europe since the 1990s. GM Europe's recent struggles focus around cost control in a fragile Eurozone economy, and GM's financial communications representative, Renee Rashid-Merem, says the company is focused on keeping revenue up and consolidating costs—measures that slowed the overseas bleeding from 2010's $2 billion loss. Meanwhile, GM's South American unit lost $100 million in its own right, largely because of its slow introduction of new products. Rashid-Merem says GM is investing in launching nine new products this year in South America to keep prospective shoppers happy, once again looking to keep revenue high to balance out against flourishing North American and Chinese markets and keep the company profitable. But as multinational companies go, those problems are relatively contained and are slowly improving. The bigger risks for GM are labor and pension costs, what largely drove GM into its 2009 bankruptcy reorganization. Fortunately, its retirement pension account is currently 88 percent funded, and GM is moving forward in divesting itself of risky debt obligations that could balloon in the future. By Sept. 30, GM is planning to move everyone hired after Jan. 1, 2001 from its company pension plan to individual 401(k) retirement plans. GM has already offered its retiring hourly labor workers lump-sum payouts, pension plans, paid contribution retirement funds, and other incentives to pay a little more now instead of a lot more later. Currently, GM has 47,500 hourly employees in the U.S. alone. "There's no one silver bullet to manage pensions," says Rashid-Merem in an interview with Automotive.com. "But we're pulling all sorts of levers to manage it and keep costs under control." Over the next year, GM looks to invest $8 billion into the development and manufacture of new products around the world. As the world slowly recovers from the recession, automakers will be one of the leading determinants of its success, based on the industry and sales. With a healthy GM, controlling its costs, that will hopefully happen sooner rather than later. Source: General Motors
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