GM prepares tough revamp of European units

General Motors has said for the first time it is preparing a tough new restructuring plan for Opel/ Vauxhall after its European business reported a large annual financial loss that the Detroit carmaker described as “simply unacceptable”.

GM said it was drafting a new strategy to run Opel at a lower break-even point to take into account a worsening European market, adding that it would work with unions, governments and others to bring the business back into the black.

“I think there’s a general recognition by all constituencies that the situation is not all that much different than it was in the US three years ago,” Dan Akerson, GM’s chief executive, said on Thursday. His comment was a reference to the American carmaker’s own deep restructuring in bankruptcy protection in 2009, which saw GM close several plants and cut tens of thousands of jobs.

“There is a constructive engagement, and everyone around the table understands that there has been a change in the structural outlook for the European economy generally,” Mr Akerson said. “There is an element of our going-forward strategy that we have to match capacity with demand, and demand has been falling.”

Mr Akerson spoke after GM reported a record 2011 net profit of $7.59bn, up from $4.67bn in 2010 and the best bottom-line result in its history. GM’s earnings were powered by strong profits in the US but marred by losses in Europe and South America.

The performance of the carmaker, 32 per cent owned by the US government, is under close scrutiny in its home country in an election year.

Its profit margins lag behind rivals such as Volkswagen and Ford Motor, and its shares are trading well below GM’s $33 initial public offer price. The shares rose 7 per cent to $26.67 in afternoon trading on Thursday.

In Europe, where GM had previously aimed to break even last year after completing a politically rancorous and protracted restructuring, the carmaker reported an annual loss before earnings and tax of $747m. The negative result was less than the $1.95bn it lost in 2010, but “simply unacceptable on a go-forward basis”, Dan Ammann, GM’s chief financial officer said.

However, Wolfgang Schäfer-Klug, who heads Opel’s works council, seized on the narrowing of Opel’s loss to urge GM to respect its agreements secured under the existing restructuring plan not to sack workers or close plants before 2014.

Karl-Friedrich Stracke, Opel’s chief executive, confirmed that GM was contractually obliged to keep its European plants open until at least 2014. He said it would be premature to comment on GM’s future plans for its facilities.

Opel has 11 car and engine plants in six European countries. Britain’s government this week said that it would “leave no stone unturned” to keep plants in Ellesmere Port and Luton, England, open.

The carmaker said that it could seek efficiencies in Europe by eliminating overlap in back-office staff between its Opel and Chevrolet brands. Mr Stracke also confirmed a plan, backed by unions, to expand Opel’s sales in China.

Mr Akerson said that GM’s problems in Europe did not boil down to a “one-dimensional issue of overcapacity”.

“We’re looking at everything in order to achieve a lower break-even point and scale,” he said. “There’s more to come on this in the next couple of months.”