How Can GM Stop Bleeding Money In Europe?
General Motors (NASDAQ: GM) has lost over $3 billion in Europe over the last three years. The company, which was expecting to grow significantly in the region by capturing a large slice of the growth driven by the Russian car market, has seen its market share decline, as it pulled out its Chevrolet brand from many countries in Europe. Most of its recent growth has been driven by the Opel and Vauxhall brands.
The company’s poor performance in Europe is thrown into sharp relief when compared with its performance in the North American car market.
Below, we describe two cases in which GM can break even at an operating level in 2016. Since most of the workers in GM’s European factories are unionized, it is unlikely that they can cut labor costs. Marketing costs also tend to be rather stable for auto companies, so we assume operating expenditures in both cases to be constant. In the first case, we assume that the company can cut some of its costs in raw materials or inventory. For it to break even, assuming 2015 unit sales and price levels, a 5% reduction in expenses is required. In the second case, assuming no change in cost of sales and flat new units sold, its revenue per unit must increase by 5.1% to $16.6K from $15.8K.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors
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