GM Europe, tasked with break-even by mid-decade, will still be losing more than $1 billion a year by 2016, report says

General Motors Europe will still be losing between $1 billion and $1.3 billion a year through 2016, despite the company’s target of breaking-even by mid-decade, and more cost cutting actions are likely, according to investment bank Morgan Stanley.

Parent company General Motors’ success is threatened by continued losses at Opel, and Morgan Stanley analyst Adam Jonas said in a report despite GM’s often repeated determination to fix the ailing European subsidiary, finding a way of exiting would be the best thing for GM.

Opel and its Vauxhall sibling have lost $16 billion over the past 12 years. Morgan Stanley has said losses in 2012 will reach $1.5 billion, but in the latest report said its action in fixing excess stocks of 120,000 vehicles should give the bottom line a boost in 2013.

“Unlike Ford’s more up-front announcements of cutting 12 per cent of manned and 18 per cent of installed European capacity with near-term plant closures, GM has taken a more subtle approach to communicating European cost-cutting which, admittedly, is more difficult to incorporate into our earnings model,” Jonas said.

“GM aims for Europe break-even by mid-decade, based on the assumption of no market share loss. We have chosen a more conservative approach, allowing for material market share loss for Opel in the face of relentless expenditure from the likes of VW, Hyundai-Kia, Ford and a more recent targeted spending push by Fiat.”

(In the first nine months of 2012 GM’s Opel-Vauxhall sales dived 12.8 per cent to just under 750,000 for a West European market share of 8.2 per cent versus 8.7 per cent in 2011, according to Automotive Industry Data.)

“The result in our model are continued losses in Europe on the order of $1.0 to $1.3 billion per annum through 2016. We expect more aggressive actions are likely required to contain the losses in Europe,” Jonas said.

Earlier this year, GM took a seven per cent stake in Peugeot-Citroen of France. Peugeot-Citroen losses are expected to hit $1.9 billion in 2012. The two companies plan various measures to cut costs in Europe long–term and produce vehicles together.

It would be better for GM investors if GM dumped Opel.

“In our opinion, exciting Opel could be the best strategic option currently available to GM and better long-term for Opel itself,” said Jonas.