GM Updates: Will Close German Plant In 2016, New Pickups To Be Unveiled

by Trefis Team
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General Motors
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General Motors (NYSE:GM) has finally decided to close down its Opel plant in Bochum, Germany, in 2016, a move which will affect the 3,100 workers at the plant. The automaker might eventually use this plant to manufacture components instead and therefore some of the jobs might be retained. [1] GM had already made its intention clear of closing the Bochum plant but negotiations were going on with the labor unions.

The entire automobile industry in Europe is plagued with overcapacity, but the labor unions and governments won’t allow the automakers to shut down plants with surplus capacity. GM is bound to lose more than $1.5 billion in Europe this year and hopes to become profitable only by mid-decade. Even that looks hopeful since it has not laid out a concrete recovery plan yet. In that respect, Ford Motors (NYSE:F) has been ahead of GM in reducing overcapacity with plans to shut down three plants by 2014.

See full analysis for General Motors

Meanwhile In America

GM will unveil the much-awaited 2014 models of Chevrolet Silverado and GMC Sierra on December 13. In spite of possessing one of the oldest portfolios, nearly 60% of GM’s vehicles sold in North America are trucks and SUVs. Moreover, these vehicles have better margins than small cars so their sales growth is certainly critical for the automaker’s future profitability. [2]

Ford’s F-150 remains the highest selling pickup followed by the Silverado. With the help of EcoBoost engines, Ford’s pickups have one of the highest mileages in their respective class. Fuel efficiency of the refreshed models will be an important parameter for people looking to buy a new vehicle since the persistently high fuel prices have forced customers to ditch SUVs and pickups for small cars instead.

GM’s light truck sales are up 0.9% through November even though industry wide sales have jumped 8.8%. We expect the automaker to hold on to its market share in 2013 helped by model refreshments. [3]

A cause for concern, however, is its soaring inventory levels. The automaker’s pick up truck inventory swelled to 139 days in November from 110 days in October. A rising inventory of its existing line-up could dent the launch of the redesigned model. To clear its existing stockpile, GM might need to offer abnormally high incentives which could then suddenly make the newer model appear unattractive due to its higher pricing.

We have a $26.90 price estimate for General Motors, which is about 5% more than the current price.

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Notes:
  1. General Motors to close Opel plant in Bochum, December 10, 2012, bbc.com []
  2. GM to unveil new pickup even as it boosts deals on current model, December 10, 2012, reuters.com []
  3. U.S. Auto Sales []
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