Bloomberg News

GM Europe Revamp to Cost at Least $1 Billion, Analysts Estimate

February 21, 2012

Feb. 17 (Bloomberg) -- General Motors Co., facing mounting losses in Europe, will have to spend at least $1 billion to revive its operations in the region, according to estimates from three analysts.

“The cost is likely to be steep and the savings not immediate,” Joseph Spak, an analyst at RBC Capital Markets in New York, wrote as lead author in a note to investors today. RBC estimates European restructuring expenses of $600 million this year and $400 million in 2013.

GM reported yesterday that its European business, including the Opel brand, had a $747 million loss before interest and taxes last year after losing $1.95 billion in 2010. The Detroit- based automaker’s losses in the region have totaled $15.6 billion since 1999, and the average of four analysts’ estimates for this year is a $1.2 billion deficit.

The company’s European restructuring costs could total $1.2 billion if 4,000 jobs are cut, Brian Johnson, a Barclays Capital analyst, said today in an e-mail.

“Given the potential to make up lost market share and improve capacity, we believe that a restructuring of the unit would provide a tailwind for the stock,” Johnson wrote yesterday in a note to investors.

Joseph Amaturo, an analyst at Buckingham Research Group in New York, was lead author of a note today that estimated GM’s cost to revamp in the region at $1 billion.

Spak rates GM shares “outperform,” while Johnson has them as “overweight/neutral.” Amaturo’s rating is “neutral.”

GM rose 1 percent to $27.43 at 2:48 p.m. in New York. The shares had gained 34 percent this year before today.

‘Falling’ Demand

GM scrapped a forecast in November that called for breaking even in Europe last year, as the outlook in the region worsened. The company’s European production tumbled 20 percent during the fourth quarter and revenue fell 9.2 percent.

“We have to match capacity with demand, and demand has been falling,” Chief Executive Officer Dan Akerson said of Europe yesterday during a conference call with analysts. “We are looking at everything in order to achieve a better break- even point, a lower break-even point, and scale. There’s more to come on this, I think, in the next couple of months.”

Even with the European losses, GM reported net income of $9.19 billion for 2011, the largest annual profit in its 103- year history.

-- With assistance from Craig Trudell in Southfield, Michigan. Editors: John Lear, Bill Koenig

To contact the reporter on this story: Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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