GM Needs More Than Just Model Refreshes In Europe

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As part of its plans to turnaround the losses in Europe, General Motors ( GM ) is refreshing its Insignia model. The model will feature a new engine which will be available in a diesel as well as a gasoline variant and will offer more technological features in an attempt to resuscitate the overall brand perception in Europe. This is the eighth car that the automaker has introduced or refreshed in the last three years.

Some of the other recent introductions include the Mokka SUV and the small car Adam which have had moderate success. Opel's market share in the first half of the year remained pretty much flat at 6.8%.

Need More Than Just Model Refreshments

Although GM's European operating losses narrowed to $110 million in the second quarter compared to $394 million in the previous year quarter, plenty of work still needs to be done. Particularly for Opel, it's not just a question of new introductions but rebuilding the entire brand in order to ensure a steady cash flow for the future. Right now, the Opel brand is weak, its cars are not trend setters and the technology/designs in its vehicles are seen as a generation behind. The Opel brand, along with its sister concern Vauxhall in the U.K., has lost more than $18 billion since 1999.

In addition to new models, GM is also spending heavily on marketing in order to improve its image in the region. The automaker reportedly spent more than $30 million on advertising for the Adam. Furthermore, the company is sponsoring a number of soccer clubs across Europe.

See full analysis for General Motors

GM is in the process of restructuring its operations in Europe which includes shutting down the Bochum plant in Germany by 2016. A number of automakers have been plagued by overcapacity issues in the region. Moreover, governments and labor unions are a major impediment to shutting plants with excess capacities. GM initially estimated that its European losses could top $2 billion in 2013, although a strong performance in the first half of the year suggests that the automaker might contain the losses well within that figure.

Markets Bottoming Out ?

The European automotive industry has been badly hit in the last couple of years with the market on course to register the lowest sales figures in the last twenty odd years. Overall, the European auto market is down 6.7% in the first half of the year. But the rate of decline has slowed down in the recent months suggesting that the market might be nearing its bottom.

Another challenge that remains for the company is how to position the 'Opel' brand along with the 'Chevy' brand. Currently, the Chevy brand is positioned as a small car brand in Europe. Opel, on the other hand, is positioned a little more upscale and targets more affluent customers. But Chevrolet sales have tanked 23% in the first half of the year dragging down GM's overall European sales. This is another issue GM needs to work on.

We have a $38 estimate for General Motors, which is slightly above the current market price.

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This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: F , GM , HMC , TM , TSLA

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