Europe hasn't traditionally been a good hunting ground for U.S. automakers. For example, crosstown rivals General Motors
Company (NYSE: GM) and Ford Motor
Company (NYSE: F) haven't done as well across the
Atlantic as they have done in the United States.
GM On Back Foot In Europe
Both the companies were raking up losses, and it was only recently Ford
made a turn for the better, moving back into the black. General Motors' European operations have been bleeding since 2000.
Meanwhile, Ford was unprofitable in Europe from 2011 to 2014, with the company losing a collective $3.1 billion in the said
timeframe. Therefore, the latest announcement from
General Motors regarding the sale of its European business to Peugeot SA (ADR) (OTC: PEUGY) should come as a no surprise. General Motors lost about $9 billion since 2009
in Europe, according to a Bloomberg report.
Ford Learns From Mistakes
Ford, however, was adept
at quickly learning from its mistakes and went through catharsis following losses for four years until 2014. Shutting down of
plants, elimination of several thousand jobs and reinvigorating product lineup with new and freshened vehicles, including
performance and luxury variants, were all radical strategic initiatives the company undertook to return its European business to
profit.
Healthy European Auto Market
The lackluster showing by the U.S. automakers comes despite the European auto market showing life. Recent forecasts released by
the ACEA showed that car sales in the European Union would grow 1 percent in 2017 following 6.8
percent growth in 2016, marking the third consecutive year of expansion.
The weak prognostication for 2017 is premised on political developments, including elections scheduled in Germany and the
Netherlands, and the Brexit.
A separate survey by the Society of Motor Manufacturers and Traders showed that new car registrations in the U.K. rose 3 percent
in January, as demand by private consumers increased for the first time since March 2016. After strong increases, both in 2015 and
2016, the society predicts a contraction for 2017.
GM's Exit From Europe
Unable to stem its more than decade-old losses, GM offloaded its European operations in favor of French automaker PSA Group for
$2.2 billion. GM see logic in the divestment, as it can now focus on more profitable markets and products and new technologies such
as electric cars, fuel cells and self-driving cars, a report in Detroit New said. The report stated that Opel-Vauxhall business it
owned for over 90 years contributed 10 percent its overall sale and accounted for 18 percent of its workforce.
If GM were to have adopted a different strategy to stay alive in Europe, it would have meant billions of dollars of investment.
Currently, GM focuses on cars in Europe, which is a misalignment with investor preference for SUVs and crossovers. Additionally,
GM's European operations have small profit margins compared to China and Europe.
Under Mary Barra, GM has been slowly and steadily pulling out of poorly performing markets such as Russia. It has stopped
manufacturing in Australia and Indonesia and has announced a radical restructuring in Thailand.
Going by Ford's turnaround in Europe, an Automotive News report suggests that
what works in Europe is having a right balance of product, capacity, leadership and brand recognition. GM seems to have missed the
trick and is paying the price for it by not having a presence in the third largest auto market of the world.
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