Is GM Screwed in Europe?

While the synergies of a parts-buying and production-sharing relationship will help the companies, many executives and investors alike believe that the only real way to stabilize in Europe is to cut capacity down to size. As noted, demand is, has been, and will continue to be in contraction, at least for the foreseeable future. Overcapacity stands as the largest glaring issue in the face of most manufacturers.

Ford (NYSE:F) has earned headlines when it announced that it would be cutting three plants in Europe, the largest being in Belgium. Understandably, workers are protesting the decision, but Ford management and investors see the closures as the only way forward. Ford expects to take a loss of $1.5 billion in Europe in 2012, an absolutely unsustainable number.

GM is approaching Europe with a different strategy that appears more dubious than Ford’s. Workforce and capacity reduction is a well-tested solution to the kinds of problems the European market faces, while GM seems determined to navigate its recovery in the region with a softer hand. The concern is that this relative softness will result in a much slower recovery at a time when losses are particularly unbearable. Strong sales in the American market can only support so many overseas losses.

For their part, Japanese manufacturers Toyota (NYSE:TM) and Honda (NYSE:HMC) have cast cautious eyes at the European market. Both have addressed the problems in the region, but have also indicated that they may become more aggressive in the market because of ongoing issues in China. Japanese manufacturers could readily compete in Europe with small, fuel-efficient models that are seeing increasing success compared to larger vehicles such as SUVs and trucks.

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