US automakers see profit in Europe's tough market

US automakers, still digging out of a deep hole at home, face stiff challenges to regain their footing in Europe where the industry remains in a slump.

In Europe this year, General Motors Co says it has cut fixed costs and is polishing the brand image of its German-based Opel. Ford Motor Co plans to push its technology-laden new models, and Chrysler says it is reshaping its distribution and dealer network to take advantage of parent Fiat SpA's established presence on the continent.

Ford was the only US automaker to show a profit last year in Europe. However, it lost money in Europe in last year's fourth quarter, which surprised some investors.

Since Ford announced its fourth-quarter loss in Europe five weeks ago, its shares are down by 22%. In the same span, GM's shares are down 15%.

In crowded, fragmented Europe, the top six automakers by sales in 2010 comprised less than half the new-car market. In the US market the top six sellers contributed nearly 80% of sales.

Intense competition and a tangle of regulations make doing business in Europe a challenge, but one that US automakers cannot afford to ignore, according to executives from Ford, GM and Chrysler who spoke with Reuters at the Geneva auto show this week.

But the stiffest headwind to success in Europe is that sales are projected to remain flat or to decline. The outcome depends largely on the direction of oil prices. Brent crude recently spiked to a 2-1/2 year high near $120 a barrel on worries over the Libyan crisis.

The more mature Western European market is expected to lose 2% in sales in 2011, while the much smaller Eastern European market including fast-growing Russia and Turkey is seen gaining about 4%. That compares with a projected growth rate of 11% in the United States in 2011 and 7% in Asia, according to JD Power and Associates.

JD Power said the overall Europe market will be about 18 million new light vehicle sales in 2011. That is just too big for a major automaker to ignore, said Stephen Odell, chief executive of Ford's European operations.

The size of Europe's car market convinced GM to hang on to its Opel operations in 2009 rather than sell them as originally planned while GM restructured under bankruptcy protection.

GM's chief executive, Daniel Akerson, and Vice Chairman Steve Girsky were both Geneva this week, underscoring the importance of the European market. Both executives, who were instrumental in the decision to hang on to Opel, told Reuters in separate interviews that Opel's restructuring plan is exceeding internal targets, particularly for revenue.

David Reilly, GM's top executive in Europe, said that Opel lost USD 1.6 billion in 2010, when it had projected a loss of USD 3 billion. The loss was less severe partly because the automaker decided to defer restructuring costs -- including shedding nearly 8,000 jobs in two plant closings -- to this year. GM lost USD1.8 billion in Europe last year.

Reilly said 2011's projection is for Opel, including the Vauxhall brand, to break even after restructuring costs, and to show a profit in 2012.

Akerson said he was pleased with Opel's progress, but that plenty of work remains.

"We've taken market share over the last 12 to 18 months," said Akerson, referring to Opel in Europe. "That's good. The restructuring plan is on or slightly ahead of projections of what we had hoped for. But we are still losing money, so I guess I'm impatient."

Opel has essentially wiped away perceptions among European consumers that it may not survive, Reilly said. But he thinks it will take about five years to restore the brand's image in its home market of Germany, where the government waged a high-profile battle to keep GM from selling it off.

GM's Opel and Vauxhall brands combined to take up more than 7% of Europe's market share, taking Europe's No. 4 spot. Chrysler's Jeep and Chrysler brands in 2010 remain a niche player at less than 1%.

Executives from GM, Ford and Chrysler each say new product is the key to increasing market share and revenue in Europe. Ford, which has 20 new or significantly refreshed models to be introduced in the next three years, has the most new product in the pipeline in Europe.

Jim Farley, Ford's global marketing and sales chief, said that 2011 "is an absolutely transformational year for Ford in Europe, and the reason is because 40% of our product by sales volume is new or refreshed."

Just as Ford in the past three years has greatly improved its US brand image in part by emphasizing new product launches with better fuel economy, its European new-product launches will focus on voice-controlled connectivity, on-board entertainment and other technology.

"We have a chance for the first time in a long time to really improve our reputation relative to Volkswagen, even in Germany, and the platform we'll do it on is using the new launches like we did in the U.S. to communicate technology," Farley said.

"We look to this year with us being in a different position than we were in 2010," said Manley, referring to the loss of 24% in sales in 2010 due to lack of new product. As with GM's Opel, European consumers were concerned about the survival of Chrysler and Jeep due to Chrysler's bankruptcy and restructuring.

"We'll complete the transition of our distribution to Fiat" and reshape its dealer network to a combination of Chrysler, Lancia and Jeep by June, Manley said.

Vehicles that are branded "Chrysler" in the United States and Britain will be sold under Fiat's Lancia tag in the rest of Europe, and the Lancia models will be sold as Chryslers in Britain by the middle of the year.

All of Chrysler and Jeep's models sold in Europe are made in North America. Chrysler CEO Sergio Marchionne has said that Chrysler expects non-US sales to increase to 500,000 by 2014, up from last year's 147,259.