The Road To European Recovery For GM And Ford Is Looking Longer

by Trefis Team
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Quick Take

  • There is optimism around the shares of General Motors and Ford due to strong results in North America and China.
  • Europe is a concern as the automakers continue to post losses in the region.
  • Things have only gotten worse for GM and Ford in Europe lately making a turnaround by mid-decade look unlikely.

The shares of General Motors (NYSE:GM) and Ford Motors (NYSE:F) have been strong in the last six months mostly on the back of strong North American and Chinese sales. Europe continues to elude the American automakers as they keep piling on the losses in the region. Both Ford and GM aim to become profitable in Europe by mid-decade and that seems to have been factored in their respective stock prices.

See our complete analysis for Ford Motors here

However, the recent European data suggest that the market might not have bottomed out yet, and that it could take longer than what either Ford or GM expects. Vehicle sales in Europe plummeted 8.5% to 918,280 units in January – the lowest in the last 23 years. [1] A particular cause for concern is Germany, which is now showing signs of slower growth. It had resisted the slump for much of the previous year, but has started off 2013 with sales down 8.6%.

Ford’s performance was worse than the overall market as its sales plunged 26%. GM, on the other hand, fared relatively better as its vehicle registrations only fell 5.2%. The automaker’s sales were helped by the new Mokka compact SUV launched in October and the Adam small car introduced last month.

Situation Hasn’t Improved

It’s important to note that the recent results have highlighted how the automakers have already begun to fall behind in their own plans. Ford’s operating losses in Europe were a whopping $750 million in the fourth quarter alone, $250 million more than what the company was expecting at the end of the third quarter. [2] Similarly, GM’s losses ballooned to $699 million in the fourth quarter to take the full year losses to $1.8 billion. [3]

At this pace, it looks highly optimistic to assume that the automakers will turn profitable by 2015. GM, particularly, has a dismal history in Europe with its Opel brand losing more than $16 billion in the last 12 years. [4] When it comes to Europe, neither Ford nor GM is really better off right now from what it was last year. We believe that Europe will remain a drag for the automakers and that the projected turnaround by 2015 looks more difficult to reach.

We have a $13 price estimate for Ford, which is in line with the current market price.

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Notes:
  1. Ford, Peugeot and Toyota lead Europe auto sales to new low, February 19,  2013, economictimes.com []
  2. Ford Motors 8-k []
  3. GM 10-k []
  4. GM’s European recovery plan, January 14, 2013, telegraph.co.uk []
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