General Motors warns of cutbacks in Europe

General Motors has warned that it may cut production capacity further in Europe as a result of Britain's vote to leave the European Union

The announcement came as the Detroit-based carmaker said its net income more than doubled in the third quarter despite $100 million in Brexit-related losses.

Strong truck sales in a US market that has hit a peak after seven years of strong growth helped GM post net income attributable to shareholders of $2.77 billion for the quarter to September 30th, up from $1.36 billion a year ago.

Bullish

General Motors, which has largely been more bullish on the US market that some other US-based carmakers, acknowledged that the home market had levelled out but called the current sales environment “strong but plateaued”.

Sales and profits in China remained strong but GM reported Brexit-related losses in Europe of $100 million in the third quarter, with a further $300 million of losses expected in the fourth quarter, jeopardising the carmaker’s goal of breaking even in Europe this year.

Asked whether GM was considering capacity cuts in Europe as a result, GM chief financial officer Chuck Stevens said: "we are prepared to take whatever action is necessary to put Europe back on the path," adding that GM had been on track to break even this year in Europe before the Brexit vote.

“We raised prices in UK 2.5 per cent on October 1st,” Mr Stevens said, “but break-even for the year is clearly at risk”.

Mr Stevens gave no details of possible capacity cuts in the UK, saying “it’s too early to say anything specific about capacity reductions” and adding “there is a lot of uncertainty on how (the impact of the Brexit vote) will play out over time”.

“The UK industry and sales have held up pretty well since the referendum but we expect headwinds,” he said.

Excluding a benefit from a recall involving ignition switches, earnings of $1.72 per share beat analysts’ average estimate of $1.45.

Predictions

Michelle Krebs of Autotrader. com said: "General Motors posted another strong quarter, beating analysts' predictions on nearly every metric, including earnings and revenue. GM's performance comes from the North American market, which is showing signs of plateauing. While GM paints a rosy forecast for its expected results for the year, it will have to accomplish those in a much tougher, even more competitive market."

Opel, the European arm of General Motors, has already cut production at two of its European plants once since the Brexit vote in June.

The company, which trades as Vauxhall in the UK, shortened working hours at sites in Germany producing the Corsa hatchback and Insignia saloon cars for the rest of the year. For both cars, the UK is the largest market in Europe, and the Corsa is the second best selling car in Britain.

Ford has also cut production in Europe because of the vote, and also decreased planned investment in its UK engine plant at Bridgend in Wales.

Copyright The Financial Times Limited 2016