GM Europe Curbs Funding Needs - Analyst Blog

General Motors (GM) has revealed that its European division can manage with lower funding than its previously forecasted €3.3 billion ($4.4 billion) for its restructuring program. The company's projection was based on the better-than-expected performance of  its European wing and expected benefit from its possible alliances with other major automakers in the region.

Although GM Europe lost $1.2 billion in the first nine months of the year, the automaker is banking on higher sales volume and restructuring actions to lift its market share in the only money-losing region. The division plans to boost its sales volume from the second half of 2011 by increasing its exports to seven markets, including Australia, China and Israel, and penetrating three to four new international markets next year.

For 2010, GM Europe expects its market share to be higher than 6.4%, achieved in 2009. Further, it anticipates market share to go up to 7% by 2012. Consequently, the company forecasted a loss in the region, which was lower by €1 billion from the previously projected figure .

In the middle of the year, GM announced that it would meet the total restructuring funding needs of €3.3 billion ($4.4 billion) for the European business using its own and improved finances. The company's decision followed immediately after withdrawing applications for loan guarantees of €1.8 billion ($2.2 billion) from several European countries, including Britain, Germany and Spain, to fund its Opel/Vauxhall business in Europe after German government turned down its request for the aid.

GM had been pursuing bailout plans for its Opel/Vauxhall unit. However, the plans took a twist in November last year when the automaker halted its plan to sell a 55% stake in the unit to Magna International Inc. (MGA), backed by Russia's Sberbank, and decided to continue running the unit on its own.

Recently, GM completed its initial public offering (IPO) that sold 478 million shares at the targeted price of $33, raising $15.8 billion. After the IPO, the U.S. government expects to recover about half of its unpaid loans to GM.

In the third quarter of the year, GM showed a profit of $2.16 billion or $1.20 per share in sharp contrast to a loss of $858 million or 73 cents per share in the year-ago quarter. Operating income was $1.85 billion versus a loss of $1 billion a year ago. In North America, GM earned $3,005 per vehicle due to its effort to boost truck output during the summer.

GM's profit was fueled by the company's turnaround performance in North America, which had been witnessing substantial losses earlier, and impressive growth in sales volume in GM International Operations segment.

 
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