General Motors Co incoming Chief Executive Officer Dan Akerson’s biggest challenge in selling investors on the company’s initial public offering may be convincing them he can revive the unprofitable European unit.
In Europe, the Detroit-based automaker’s only unprofitable region, losses totalled $637 million before interest and taxes in the first half. Its updated Astra compact failed to reverse a drop in market share and unions still are stinging over plans to close Adam Opel GmbH’s factory in Antwerp, Belgium.
Akerson’s appointment last week erased one of the biggest questions over the IPO, giving investors a long-term chief instead of 68-year-old Ed Whitacre. Possible buyers now want to know whether Akerson has a plan to stem the losses in Europe, investors said. GM may seek to raise as much as $16 billion in the offering, a person familiar with the situation has said.
“One of the aspects to consider before deciding upon the IPO is to see a more specific roadmap for how, and by when, they are going to turn Opel around,” said Raimund Saxinger, a fund manager at Frankfurt Trust Investment GmbH, which oversees about $21 billion including automaker shares.
Europe accounted for 20 per cent of GM’s vehicle sales in the first half of this year and an equal percentage of its employees. Industrywide, more vehicles were sold in Europe last year than in the US or China.
Restoring profitability
One challenge in restoring profitability will be boosting deliveries with lower sales incentives. In Germany, Europe’s biggest auto market, Opel dealers offered average discounts of 12.7 per cent in June, trailing only the 12.8 per cent of French carmakers Renault SA and PSA Peugeot Citroen, according to trade publication Autohaus PulsSchlag.
Opel sells about 90 per cent of its cars in Europe. Opel’s first-half market share fell to 7.2 per cent from 7.5 per cent.
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GM has said it plans to spend $4.6 billion of its own money to overhaul Russelsheim, Germany-based Opel and its UK brand Vauxhall after the German government refused in June to provide aid. The restructuring would include closing the Antwerp site if a buyer for the factory can’t be found by the end of the year, GM has said.
GM had planned to sell a majority stake in Opel under a German-government brokered deal in November to a group led by Magna International Inc before the board, goaded by Akerson and other members from private-equity backgrounds, decided to keep the unit.