gm’s new global strategy puts profits first
Last Updated : GMT 09:07:40
Egypt Today, egypt today
Egypt Today, egypt today
Last Updated : GMT 09:07:40
Egypt Today, egypt today

In a major shift of strategy

GM’s new global strategy puts profits first

Egypt Today, egypt today

Egypt Today, egypt today GM’s new global strategy puts profits first

GM’s interest in Opel was focused on acquiring know-how
London - Arab Today

In a major shift of strategy, General Motors (GM) seems to have abandoned competing for global market leadership with Volkswagen (VW) and Toyota to focus on profitability and return on invested capital. GM is in talks with French group PSA to sell its loss-making European operations that includes German Opel and its British subsidiary Vauxhall.
GM CEO Mary Barra has visited Opel headquarters in Ruesselsheim near Frankfurt, to brief senior managers about GM talks with PSA. Also, Carlos Tavares, CEO of PSA, promised to visit Germany soon for talks with senior officials and labor unions about a possible deal to acquire Opel. He promises to keep Opel a German brand.
Shares in both GM and PSA rose by 5 percent and 4.3 percent respectively on the news although there is no official confirmation yet of a final deal.

gm’s new global strategy puts profits first

GM’s interest in Opel was focused on acquiring know-how to develop small and midsize cars needed for the US and Asian markets. However, the small-car segment is losing ground in the US and China for SUVs and crossovers. In addition, tough emission regulations in Europe are making European vehicles more expensive to sell in other markets, especially in Asia and Latin America.
GM has also enhanced its cooperation with its Chinese partners, Shanghai Automotive Industry Corp., that provide alternative capacity for producing cheaper small cars.

gm’s new global strategy puts profits first

Bob Lutz, former GM vice chairman, said such a deal would permit acceleration of GM business in North America and China and will make better use of resources. The deal is still at an early stage of negotiations and yet to involve discussions on restructuring costs, pension liabilities, debts and intellectual property rights.
Selling Opel would mean GM is abandoning competition for the industry’s leadership to be a smaller company focused on the US truck market, China and some growth markets in Latin America, Asia and the Middle East. Under Barra’s leadership, GM has exited Russia and Indonesia after concluding it could not earn acceptable returns on investment in these markets.
GM European operations have consistently failed to achieve good returns on investment despite a billion-dollar restructuring cost for GM since 2012. Opel does not expect profits until 2018.
On the other hand, PSA proposal to buy Opel is part of CEO Carlos Tavares’ ambitions. He plans to catapult Peugeot-Citroen to the No. 2 spot in Europe after VW, relegating Renault to third position.
Tavares used to work for Renault as deputy for the more famous Carlos Ghosn until he left the group to take the helm at PSA in 2013. Analysts from Frost & Sullivan said that Tavares would be targeting economies of scale, more consolidation in the small-car market, access to key platforms and even new GM technologies. However, other analysts question the logic of doubling PSA presence in Europe, which is a mature market.
Yet shareholders seem to support the move as they trust Tavares who managed a rise of 140 percent in PSA’s share value since he took over compared to 66 percent for Renault and 20 percent for VW.
Tavares has the support of the French government, which holds a stake of over 13 percent in PSA as long as the deal does not have negative impact on French jobs. However, the deal may meet some political resistance in Germany. Some German politicians pointed out that GM carries responsibility for the Opel sites, its development center and the security of employment.
German Economy Minister Brigitte Zypries called it “unacceptable” that GM discussed a possible Opel sale without first speaking with the works council, labor unions and the state government in Hesse, where Opel is based. The manufacturer has two plants in Germany and the future of jobs at the sites could become a topic in this year’s German federal election. German labor unions also said in a joint statement that any such deal without the consent of unions would be an unprecedented violation of German and European co-determination rights.
Hesse Prime Minister Volker Bouffier suspects that GM is following the vision of the new American president and focusing more on America and less on Europe. It was reported that the German Cabinet had discussed the sale of Opel in meetings this week. Opel employs the majority of its labor, about 28,000 workers, in Germany. It also has plants in Austria, Hungary, Poland, Spain and Britain, where it uses the Vauxhall brand.
European operations have been a drag on the GM global profitability since 1999, the last year Opel and Vauxhall recorded a net profit. GM restructured its European operations over the past six years, shutting Opel factories in Belgium and Germany and withdrawing the Saab and Chevrolet brands from sale.
Still, GM Europe failed to break even in 2016, as Barra had once promised it would. Last week, the company said it did not expect profits in Europe before 2018.
GM also faces heavy investment in Europe to comply with tougher emission regulations, especially on diesel cars. The European market is also shifting toward more demand for SUVs.
One other unexpected outcome of this deal was a rise in Fiat Chrysler shares on speculation that GM may acquire the company. However, Mary Barra insisted that she is not interested.

Source: Arab News

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