Driving Conversations: The official GM Europe blog

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November 7, 2008

Staying On Course

Today, we announced our third-quarter financial figures. And, frankly speaking, there’s no sugar-coating these results. Clearly this was a brutal quarter and to say I’m not satisfied with these results would be a monumental understatement. Market conditions remain very difficult, but we’re working aggressively to manage our business through this period, while ensuring we can capitalize on growth once markets stabilize. And I do believe the markets will eventually begin to return to strength, given the coordinated global actions to boost consumer confidence. But it’s going to take time. In addition to the dramatic fall in consumer confidence and spending, GM Europe continues to face non-operational economic headwinds as well. Unfavorable exchange rates, high commodity prices and saturated western European markets, as well as the economic impact of the financial crisis in key Western European markets will persist for the near-term picture.

Without doubt, these took a heavy toll on our third-quarter financials, as the effects of the financial crisis have intensified in Europe. Foreign exchange rates between the pound and the euro hit us hard because we sell considerably more cars in the U.K. than we produce there — the experts say we have a significant exposure to pound/euro exchange rate movements. That was compounded by a correction in the residual values of major rental fleet sales, mostly in the U.K., and for Saab worldwide. GME’s share of global structural charges for product development increased year-over-year as well. With commodity prices finally falling, we saw a significant negative hedge position in Q3.

The other third of the deterioration vs. last year was attributable to automotive operations, caused by weakness in key Western European markets. Overall, the automotive industry has seen a dramatic market decline in Western Europe of 10.6 percent in the third quarter. Germany was down 2.6 percent, the U.K. down by 18.5 percent, Italy down by 12.7 percent and Spain had a massive drop of 35 percent. For GM, that weakness in Western Europe markets was only partially offset by Eastern European / Russian sales. For example, in the first nine months of the year, Opel increased its sales in Russia by 73 percent, although these constitute less profitable sales for GM Europe, mostly due to the high import tariffs.

Although high import tariffs do limit the financial success of this operation (as long as we don’t produce most of our volume there), I do believe that the Russian market will continue to grow medium and long term. To meet this growth, we will increase our presence in Russia by opening a new GM plant in St. Petersburg on November 7, where the Opel Antara and the Chevrolet Captiva will be built, followed by the Chevrolet Cruze next year. As GM traditionally builds cars where it sells, the opening of this new, state-of-the-art plant is an important move for GM and the St. Petersburg region.

We are in a pan-economic global crisis driven by the lack of credit/liquidity at all levels of the market. I’ve spoken to business leaders both inside and outside our industry and GM is certainly not the only company under intense pressure. We have to act aggressively and we are doing so already. Part of our strategy to deal with these headwinds is to continue to improve revenue and productivity and to get the cost base of the operation in line with market demand. Clearly, we have much to do in this area over the next several months.

At the same time, I should be clear that despite the difficult financial situation, we will continue to invest into the development of our vehicles and invest in growth markets. Importantly, our quality and reputation scores are improving in external studies and we are getting much-improved overall feedback on our cars. In fact, Autobild recently positioned Opel as the best European brand in terms of quality and the readers of auto motor und sport voted Zafira to be the most attractive and flexible compact van. The media feedback on the new Insignia was particularly encouraging as is the order intake even before the car hits our dealers’ showrooms.

Headwinds can slow you down, but you don’t give up. You need to quickly adapt to the conditions, and, with determination, not lose sight of the course you have set.

Carl-Peter

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