Europe overcapacity affects GM, CEO says image

General Motors CEO Dan Akerson today spoke of the need for GM to reverse its losses in Europe, with the region suffering from a saturation of automotive production capacity.

His comments, made at the Detroit Economic Club, signal that GM plans to further cut costs at its troubled European division. “When you’re running your plants at a utilization of anything less than 100 percent – and in most of Europe they run at 85 percent – you’re trying to bend the demand curve to beat the supply curve,” Akerson said, adding that the situation mirrors GM’s problems in the U.S. only a few years ago which led to bankruptcy in 2009.

“You’re oversupplying to cover your fixed costs, which means you overproduce, you cut price to take or hold share, you start dumping your excess into fleets, which ruins your residuals,” Akerson explained. “Clearly you can’t have a unit as important as Opel is to General Motors chronically unprofitable,” the CEO added.

GM gets about 17 percent of sales from Opel, whose losses have been reduced in the third-quarter to $292 million, from $559 million a year earlier. In the first nine months of this year, GM has cut 5,800 jobs in Europe and spent $900 million for restructuring, according to a regulatory filing.