GM confident over European division’s future

General Motors says that it is confident that it can raise the required cash to keep and restructure its European division following this week’s shock decision to retain Vauxhall/Opel.

GM chief executive Fritz Henderson said the company would unveil restructuring plans for Vauxhall/Opel shortly. He said: “We feel confident that the plan will be financeable.”

He added that Opel could afford to pay back the remaining €900 million of the €1.5bn bridge loan, which the German government had extended to Opel in May to keep it afloat after GM entered Chapter 11 bankruptcy protection.

It has emerged that UK Business Secretary Lord Mandelson is prepared to offer GM financial assistance in the form of loan guarantees worth about £200 million in return for job commitments at Vauxhall plants at Luton and Ellesmere Port.

But the German and Russian governments are furious at GM’s U-turn following an initial agreement to sell the Vauxhall/Opel business to a consortium led by Canadian car parts manufacturer Magna International, which was backed by Russia’s Sberbank.

Amid fears that the decision could lead to widespread jobs cuts at Opel’s four German car plants and the possible closure of one, workers in Germany staged strike action yesterday (Thursday, November 5).

Meanwhile, Russia fears that the decision has cost it the chance to access the Western car market and use its technology.

US President Barack Obama is reported to have stepped into the row and is believed to have secured an agreement with Angela Merkel, the German Chancellor, that she would ‘co-ordinate’ with the US leader on the future of GM. The American government is the majority shareholder in GM following the company’s restructuring earlier this year.

Meanwhile, Russia’s Prime Minister Vladimir Putin has questioned the country’s business relationships with the US in the future. (National newspapers: November 6).

DfT launches new climate change campaign on impact of car use

The Department for Transport has launched an advertising campaign aimed at reducing CO2 emissions from car use.

The TV advert – due to be aired from tomorrow (Saturday, November 7) highlights that by driving five miles less a week, any driver can help make a difference.

Developed as part of the cross-Government ACT ON CO2 campaign, the advert aims to raise awareness of the impact of car travel on CO2 emissions and ways in which drivers can play their part in reducing this.

Car travel is the single biggest source of household and individual CO2 emissions in the UK. If all UK drivers reduced their driving by five miles a week the nation could save 2.7 million tonnes of CO2 per year.

Transport Minister Sadiq Khan said: “This campaign asks people to think more carefully about the journeys they routinely take. In our daily lives we create over 40 per cent of the UK’s CO2 emissions, every action we can take to reduce this figure will make a difference.

“Our research has shown that driving five miles less a week is something people feel they can manage – for example, by combining journeys or walking and cycling a bit more for short trips.” (DfT: November 6).

Tough times ahead for car dealers as insolvencies double

Plummeting car sales, heavy discounting of new vehicles and lower levels of servicing work have combined to catastrophic effect on the automotive retail market in the UK, which has seen franchised dealership insolvencies double year on year.

That is the view of Ernst & Young, which in a new report reveals a total of 24 dealer insolvencies up to the end of August this year, compared to 12 for the same period in 2008.

‘UK Car Dealerships – Lessons from the Last Recession’ provides a perspective on the current and future trends in the UK automotive retail market and highlights the different effects on the sector between this economic slowdown and that of the 1990s.

Eric Wallbank, UK head of Ernst & Young’s automotive team, said the severity of the recession on the wider automotive sector was well documented but its effect on the dealer industry has been equally severe.

“Production shut downs, GM and Chrysler filing for Chapter 11 bankruptcy and a string of component suppliers going to the wall have dominated the headlines in recent months. But UK franchised dealerships, the last link in the global automotive chain, are suffering an equally severe effect,” he said.

“A cocktail of falling sales and diminishing profit margins has led to unprecedented levels of dealer closures. But the true extent of distress facing dealer groups is being masked by the closure of many loss making sites which would have not been reflected in the overall insolvency numbers.”

A significant contributing factor to lower dealer profit margins is that while new car sales typically represent 50 per cent of turnover, they only make up 25 per cent of gross profit.

Conversely, aftersales only make up around 15 per cent of dealer revenues but is the largest generator of profits with some dealers targeting and delivering over 50 per cent of gross profit from this source.

However, the overall slump in new car sales over the last 18 months will lead to weaker demand for servicing and parts from franchised dealers in the medium to long term, further adding to their profit woes.
“The strength of new car sales until mid 2008 should sustain dealer servicing volumes in the near term, but the impact of a drastic fall in sales from then on will be hard felt across franchised dealers over the next three year’s or so,” said Mr Wallbank.

“Add to this better build quality, longer service intervals and a consumer trend towards smaller vehicles and the future outlook for servicing volumes will be downwards for years to come.”

As a result, although the economic crisis appears to have stabilised, there are still real uncertainties for the dealership sector which will continue long after the UK emerges from the recession, says the report.

Vehicle manufacturer instability, the lack of available finance for consumers to fund new and used vehicles and falling demand for aftermarket services are all likely to adversely impact profitability for dealers.

Mr Wallbank says conditions will get worse for dealers before they get better and added: “We expect the number of dealer failures and site closures to accelerate into 2010 as the full effects of the current drop in car sales are felt.

“The franchised dealers best placed to weather the storm will be those able to retain a significant proportion of customers’ aftermarket spend and those representing growth brands. This is particularly true of dealers offering a strong line of smaller vehicles which are proving to be increasingly more attractive to changing consumer tastes.” (Ernst & Young: November 6).