GM says Peugeot just one step in Opel fix

Tue Mar 6, 2012 5:39am EST

* Exec says Peugeot alliance is extra tool in Europe toolkit

* Declines to say what will come next in the plan

* Says working to improve profitability of European business

* Won't say how much GM expects to lose in Europe in 2012

* Says possible Europe mkt will be depressed for some years

By Bernie Woodall

GENEVA, March 6 (Reuters) - General Motors Co's alliance with French peer PSA Peugeot Citroen is just one part of GM's plan to fix its loss-making Opel unit, Vice Chairman Steve Girsky said, though he declined to say what would come next in the plan.

Girsky, a former Wall Street banker, told reporters at the Geneva Auto Shows on Tuesday he knew investors, consumers and Opel workers do not like uncertainty but they just had to believe him when he said GM has a viable plan for Europe.

He said the alliance GM signed last week with Peugeot is "an additional tool to the toolkit in Europe".

GM paid 320 million euros ($423 million) for a 7 percent stake in Peugeot as part of an alliance designed to save the companies at least $2 billion over the next five years.

"We can't tell you what our play is in Europe," said Girksy. "We will tell you when it plays out over the next period of months and years ... I don't see the play in Europe showing up in one big bang."

Girsky declined to say when the next step would be made in the overall GM profit plan for Europe, where analysts and auto executives say production capacity is at least 20 percent higher than needed to keep companies profitable in a tight and weakening market.

"Excess capacity is not a GM issue, it's an industry issue," Girsky said.

"We've taken steps in the past. The only thing I can tell you at this point in time is that we are working with all of our constituents to improve the profitability of our European business up and down the income statement. Improve the revenue and improve the fixed-cost structure to improve the break-even levels. We will tell you more when we know more."

He also declined to say how much the world's biggest automaker will lose in Europe in 2012. GM's Detroit rival Ford Motor Co said it will lose between $500 million and $600 million, due mainly to an 8.5 percent fall in industry European auto sales this year.

WORKING TOGETHER

Girsky would not comment on whether such a fall in sales will mean GM would lose more money this year than the $747 million it lost in 2011. GM has lost money in Europe for the last 12 years.

"It's not just investors who hate uncertainty," said Girsky. "It's the workers, it's the employees. People are working really hard on this. Please don't tell me we don't have a chance at this. There's a lot of people - German, British, Spanish, Polish, Russian and now French - working together to make this situation work.

"We know there's uncertainty. There's uncertainty in the economic environment across Europe. That is what we have to live with and what we have to work our way through. Working together, we think we can get this done."

Girsky said GM is committed to Opel in Europe, including its Vauxhall brand in Britain. "Any talk that we are not committed to Europe should be off the table," he said.

GM last year named company veteran Karl Stracke as head of its operations in Europe, added senior GM executives to the Opel board and lowered bonus pay for GM executives in Europe.

"We're trying to change the calculus here," said Girsky. "We know that running the same play the way we've been running it won't work, and we're trying to do it differently. This (PSA alliance) is an example of it and you are going to see more."

Girsky said GM and Opel have taken out as much capacity as they can without closing plants. GM has an agreement with the German union IG Metall not to cut jobs through 2014.

Michelle Krebs, analyst with Edmunds.com, said Girsky was taking a risk that investors and consumers will trust GM has a viable plan to fix Opel without offering specifics. Also, she said, the alliance with Peugeot does not take out any of the overcapacity that plagues most European automakers.

SHARED PLATFORM

"Is this what the American taxpayer's want?" said Krebs, who is at the Geneva Auto Show. "It's not solving their problem, which is stemming the losses, and they are basically asking us to trust that the payoff will come in the future."

Girsky, who is overseeing the reshaping of Opel, said the first product on a shared platform would begin production in 2016, but the first concrete signs of efficiencies in the alliance would emerge later this year.

"In the second half of this year, you will start to see some of the product programs and the purchasing initiatives that we do will start to be developed," Girsky said.

Girsky said the Peugeot-GM alliance will work for the companies outside Europe as well, primarily in emerging markets. He was not specific but agreed that Brazil and India could be places where shared-platform vehicles may go on the market. He said cars made for emerging markets will be different than those for Europe.

In India, automakers often make less expensive vehicles with fewer amenities.

Girsky said the new GM-Opel relationship is working to be much more transparent to investors surrounding its costs. As for closing plants, he said GM and Peugeot will make their own decisions on how to manage their production, but restated that the alliance will not cause any plants to close.

Girsky also said it was possible the European market will be depressed for several years. Economic weakness is just one of the reasons it will take GM longer to restructure toward profitability in Europe than it did in North America, where it was helped by governnment-sponsored bailout and bankruptcy.

"Bankruptcy created a big bang in the U.S.," said Girsky. "In Europe, it will play out as the new product programs are launched."

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