General Motors continues to lose money in Europe. Despite attempts to reduce costs, the company recorded losses of $813 million in 2015 and $257 million in 2016 before taxes. Even with these losses the French automaker, Peugeot, may be looking to purchase the GM’s European fleet that contains both Vauxhall and Opel. The announcement of such measures on Tuesday have caused GM’s stock prices to soar, with the potential to unload this segment of its business with such large losses.
GM predicted that the company would break even in 2016. As such, the first two quarters of 2016 revealed the potential for the European region to yield a profit for GM. After the Brexit turmoil, the company believes a weak pound and decline in vehicle demand influenced $257 million in losses. Still, 2016 remains one of the company’s better years in Europe, and the company aims to break even by 2018 now. With such enormous losses, why then does Peugeot want to buy Opel and Vauxhall?
A major factor inhibiting the profitability of GM’s European division remains its inability to appropriately utilize factory capacity. Last year, only 63% of its factory capacity was used, lower than industry averages. This remains a problem across Europe, as
the governments make s it difficult to close factories and lay off workers, yet the operating capacity of GM remains 8% below the industry average. As a global giant in the auto industry, the low production capacity in Europe evidently reveals a large problem; however, Peugeot may seem to think they have the ability to harness some of this capacity. As such, the acquisition would stand to make Peugeot the second largest player in the European car market, behind Volkswagen.
In 2016, GM’s European subsidiary showed potential for profit. As such, Opel recorded two straight months of strong sales to start the year in the German market, an increase of over 25% during that period. These sales were largely driven by the Opel Astra, the European “Car of the Year” in 2016. Currently, it is difficult to tell whether GM is finally abandoning its European segment after years of losses, approaching almost $20 billion since 1999, or whether the company is selling high after the displayed potential for profits and sales in 2016. However, it remains to be seen whether the sales in Germany alone will continue to rise across all of Europe. If they do, the acquisition of Opel and Vauxhall may prove lucrative for Peugeot.