A Flurry Of New Models In Europe Can Lift GM To $38
General Motors (NYSE:GM) released new models under its Opel brand at the International Motor Show in Frankfurt as part of its effort to turn around its European business. It showcased the revamped Insignia, Insignia Country Tourer and Insignia OPC as well as the Opel Monza concept car. The limited edition Adam Black Link and White Link models made their debut as well. [1] The automaker also unveiled a one-liter, three cylinder engine that is 30% more fuel efficient than its predecessor. Fuel prices are higher across the Atlantic, so a more fuel efficient engine should do good for the company.
A flurry of new models can help Opel outperform the broader market. Opel’s market share has largely remained stable this year but it is Chevrolet that has caused trouble. The automaker needs to rethink its strategy on how to position the two brands distinctly. Currently, the Chevy is positioned as a small car in Europe. Opel, on the other hand, is positioned a little more upscale and targets more affluent customers.
Overall, GM has big plans for Opel. It plans to release 23 new or refreshed models by 2016. The automaker is in the process of restructuring its operations in Europe which includes shutting down the Bochum plant in Germany by 2016. GM could lose more than $1 billion in Europe but remains on course to turn profitable by the mid-decade. The Opel brand, along with its sister concern Vauxhall in the U.K., has lost more than $18 billion since 1999.
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Worst May Be Behind
The European auto market is down 6.7% in the first half of the year, but the rate of decline has slowed down in the recent months suggesting that the market might be nearing its bottom. [2] In July, it even turned positive before reversing the gains in August. [3] But it definitely looks like the period of free fall is over. The automotive market may witness such fluctuations before it finally starts to consolidate.
GM also believes there could be some pent-up demand in Europe, similar to what the U.S. is experiencing right now. The U.S. automotive market crashed in 2009 but started rebounding from 2011. Something similar could happen in Europe as well. Due to high unemployment and fiscal austerity measures implemented by various governments, the disposable incomes of people have dried up.
As a result, customers are deferring their decision to buy a new car and are instead opting for public transportation. The average age of a vehicle on road is 14 years. But if the economy and unemployment levels improve, people will once again have the money to spend and we could see the automotive market touching the pre-recession levels.
We have a $38 estimate for General Motors, which is about 5% above the current market price.
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Notes:- GM’s Opel unveils new models, engines as it looks to boost sales, September 10, 2013 [↩]
- European car market begins rebound as economy improves, August 15, 2013, autonews.com [↩]
- German car sales retreat in August, September 3, 2013, reuters.com [↩]