Opel continues to drag down General Motors’ otherwise positive performance in 2011, and the automaker’s U.S. shareholders are turning up the heat on GM CEO Dan Akerson to slash production in Europe.
Last September, GM said it expected its European operations to be fully profitable – and more than just break-even – by the end of 2011. Then in November, GM said it couldn’t break even in Europe. This has put a damper on GM’s U.S. profits, and reports could reveal the quarterly profit be the lowest since the Detroit automaker emerged from bankruptcy in 2009.
Akerson celebrated Opel for earning $102 million in the second quarter (before factoring in taxes and interest), which was an improvement considering the company had lost $390 million in the first quarter of 2011. In the third quarter, it lost $292 million rounding it out to a loss of about $582 million through the first nine months of 2011. Analysts are estimating that European losses will rise from the third quarter to $358 million. In 2010, it lost $586 million in the fourth quarter and $1.76 billion for the year, including restructuring charges. Since 1999, GM’s European arm as a whole has lost $14.7 billion.
“Whenever you have a company that has a major division losing money without any tangible end in sight to those losses, it does tend to depress the overall multiple,” analyst Itay Michaeli told Bloomberg. “What investors are afraid of is that the more Opel is in the news under a negative light, it only makes the restructuring more difficult; it potentially even harms the brand to some extent in terms of market share and sales.”
GM has already slashed its European workforce to save costs, but the company may look to close plants in the U.K. and Germany. Analysts predict GM could cut anywhere from 3000 to 5000 jobs in the next year and a half. If this does happen, GM’s plant utilization rate may drop to 69 percent from the 78 percent it has now. Typically, at least an 80 percent utilization rate is needed for an automaker to be profitable.