GM Believes That Europe Pricing Weakness Causes Broad Capacity Cuts image

General Motors believes that the worsening of the European car market sales and pricing over the last few months will lead to restructuring across the industry.

“GM appears to expect a more substantial industry volume decline during this cycle, ” wrote Rod Lache, a New York-based analyst at Deutsche Bank. The automaker “thus expects more substantial capacity reductions and by a broader” group of automakers.

Karl-Friedrich Stracke, head of GM Europe, told reporters at the Geneva Motor Show from March 6th, GM, which lost $747 million in Europe last year before interest and taxes, will take two to three months to announce a restructuring plan for the region, which translates in spending at least $1 million to revive its European operations. Since 1999 GM has lost $15.6 billion in Europe.

“Pricing appears likely to trend lower until either volumes rebound or capacity exits the industry,” wrote Peter Nesvold, a New York-based analyst for Jefferies & Co. “Neither seems to be likely in the near term.”

GM, who wants to acquire 7% of PSA Peugeot Citroen, is paying around $420 million. An alliance with this company was formed to purchase and develop vehicles to reduce costs by about $2 billion annually within five years.

“Investors have met the alliance with some skepticism and it is our view that the alliance does get to the crux of the issue, which is addressing overcapacity,” Joseph Spak, a New York-based analyst for RBC Capital Markets, wrote in a report. “In GM’s view, they supplied a modest amount of capital for a reasonable amount of upside but the payoff is years away.”