GM General Motors Company

By Eric Sylvers 

GENEVA -- General Motors Co.'s unconventional view of the European auto industry will likely remain just that -- unconventional.

Senior executives gathered at this week's Geneva auto show signaled commitment to the world's third-largest auto market after GM's sale of Adam Opel AG, saying Europe actually isn't a bad place to sell cars. While margins typically are lower than North America and China, and closing a plant is often viewed as a politically incorrect move, "a well-managed company can make a decent return on its investment in Europe," Renault SA Chief Executive Carlos Ghosn said at a news conference Tuesday.

European governments own stakes in several national auto makers, including Renault and German auto giant Volkswagen AG, representing a potential hurdle for executives aiming to make significant changes. GM has long battled German unions and it has been unable to push the same deep concessions it forced on the United Auto Workers in the U.S. over the past 12 years.

Mr. Ghosn was one of several auto chiefs to express surprise at GM's move. "We need to be patient," he said. "That's why I'm amazed to see some auto makers getting out of key markets."

Unlike Renault and many of the other auto makers competing in Europe, GM has been unable to earn money during a four-year rebound taking place in Europe. One of the few companies to close a factory in the region in recent years, GM has incurred losses totaling $15 billion in Europe since 2000, including a $300 million loss last year that led the company to report a rare miss on a profit target set by Chief Executive Mary Barra.

Peugeot SA of France said Monday it struck a EUR2 billion ($2.12 billion) deal to buy Opel, its Vauxhall sister brand and Opel's finance company. GM said a shift in focus to other markets, as well as the steep investments needed to meet European Union regulations and narrow product tastes, prompted the deal.

Peugeot CEO Carlos Tavares said some of the blame for GM's continued losses can be chalked up to an excessive focus on its home market and failure to tweak models in seemingly mundane ways to confront the peculiarities of different European countries. That is the same criticism levied at many European companies -- including Volvo Car Corp. and Volkswagen -- that don't overhaul their Euro-focused cars for the U.S. market.

Said Volvo CEO Håkan Samuelsson: "I got the impression Opel has tried to be more premium and it didn't work."

Mr. Samuelsson has overseen a remaking of the Swedish brand in recent years, working with Chinese owners to create higher-end sport-utility vehicles that appeal to U.S. consumers.

Mr. Tavares, a former lieutenant of Mr. Ghosn in the Renault alliance with Nissan Motor Co., took over Peugeot in 2013, trimming the workforce and slashing production to steer clear of bankruptcy protection and return to profitability. He said the home field is only going to get tougher.

"The European market is becoming more and more specific in terms of customer needs, in terms of regulations, in terms of trends," Mr. Tavares said Tuesday. "Even in politics, it's specific and you need to deal with that if you want to create a sense of calm and focus inside of the company."

Mr. Tavares made sure he had the French, German and British governments on his side as he negotiated to seal the deal to buy Opel.

"We understand that it is a challenge for GM to understand Europe," said Mr. Tavares who lauded GM for continuing to invest heavily in Opel even as the losses continued to accumulate. "Let's put ourselves in their shoes looking at Europe from the outside. It's not always easy to understand what is happening [in Europe]."

Ford Motor Co., with slightly more market share than GM, figured it out. After suffering a string of losses after the European market collapsed, the Dearborn, Mich., company turned in back-to-back profits in 2015 and 2016, including $1.2 billion last year.

Jim Farley, CEO Ford Europe, said that to be profitable in Europe "you have to be smart, selective where you compete, and disciplined with costs." Ford's cost cuts in Europe have included moving "knowledge work" to Romania from Germany.

GM executives said that political events, including the U.K.'s exit from the European Union, led to the most recent losses and the decision to leave Europe, which represents about 20% of the world's car sales. GM, the No. 3 auto maker in terms of global volume, relied on Europe for more than 10% of sales.

Sergio Marchionne, CEO of Fiat Chrysler Automobiles NV, said he was "shocked out of my pants" to see a note mentioning geopolitical risks in Europe as part of a GM presentation announcing the Opel sale.

"I've heard Europe described in a variety of fashions, but describing the old continent as posing geopolitical risks to a multinational, I think we are bit stretching the thing out of proportion," Mr. Marchionne said.

To be sure, Europe remains a challenging place to earn money selling cars. Ford and Fiat Chrysler are much more profitable in North America, where trucks and SUVs are popular. Renault gets most of its profit from the stake it holds in Nissan.

Mr. Marchoinne said profitability in Europe is held back because companies haven't managed to slash production capacity -- and jobs -- in the region as the Detroit 3 did in the U.S. during the financial crisis that pushed GM and Chrysler into bankruptcy. "We can't have that discussion in Europe, which is why this thing is politically complicated."

--Chester Dawson and William Boston contributed to this article.

(END) Dow Jones Newswires

March 07, 2017 16:55 ET (21:55 GMT)

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