General Motors is looking at various options, including closing operations and broad cost cuts, to shore up GM Europe’s bottom line in the wake of the “Brexit” vote.
Chuck Stevens, GM’s chief financial officer, told analysts that the automaker was prepared to re-evaluate its entire business in United Kingdom in the wake of the decision by British voters to leave the European exit.
“We will look across the whole business,” Stevens said during a conference call after the company released its second quarter earnings. “We will look to optimize our cost structure. We will go through the whole list of drivers. That may involve the footprint.”
Stevens offered no specifics, but he noted the Brexit vote left GM importing components and vehicles that have suddenly become much more expensive as British pound sterling lost value in the wake of the vote to cut Britain’s ties to the European Union.
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“We import a heck of a lot more than we export,” Stevens noted.
GM also sees a significant weakening of vehicle sales in Great Britain, estimating that new car sales could fall between 5% and 10% during the second half of the year as the British economy slowed in response to uncertainly created by Brexit.
“The housing market has already stalled,” said Steven told analysts, who zeroed in on the impact of Brexit on GM’s business.
“We did have some hedges,” said Stevens as he explained GM guidance, which expects operations in Great Britain to lose $400 million. The biggest weakness is the weakness of the pound sterling.
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“The result of the vote has adversely impacted the British pound, and the uncertainty has put a strain on the UK auto industry. If current post-referendum market conditions are sustained throughout the remainder of 2016, we believe it could have an impact of up to $400 million to the second half of 2016,” Stevens said.
Meanwhile, LMC Automotive has speculated that GM could be the first automaker to close a plant in Great Britain. The plant on the chopping block is a Vauxhall passenger-car plant in Ellesmere Port, according to LMC.
Stevens, however, told analysts the review of costs and the footprint in Great Britain is just beginning.
GM Europe hasn’t turned a profit since 1999 and GM’s top management has vowed that the European operations, anchored by Opel and Vauxhall, would reach break even this year. In fact, GM Europe turned a profit in the second quarter of $131 million, leaving European operations in the black for the first half of 2016.
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However, the positive news from Europe in the first six months of the year is offset by the impact from Brexit, he said. “Clearly things are still fluid. We believe we have $400 million headwind. However, the team remains focused on managing the business,” he said.