GM Stock Drop Linked to European Debt Crisis, Pensions

According to GM CEO Dan Akerson,  GM stock will rise when the company solves its problems in Europe and finds a way to tackle massive pension obligations. Akerson spoke at a GM shareholders meeting about the companies priorities. “First and foremost, we have to fix Europe, or at least get it to where it doesn’t drain the corporate coffers.”

Akerson said the threat of the debt crisis in Europe is also dragging down GM’s stock price.

Labor agreements have been made recently in Poland and England which will have “a significant impact on our potential future in Europe,” says Akerson. More talks are ongoing in Germany and other countries in Europe.

In addition, GM is considering an hourly pension buyout for over 400,000 hourly retirees and dependents.  Akerson says the company’s $134 billion pension obligation is the largest of any company in the U.S. Some salaried retirees will definitely be offered a buyout this month. Akerson spoke about the hourly buyout as “something we would look at if the opportunity arose.”

The outlook is not all bad, says Akerson. He brought up the fact that many other automakers are experiencing low share prices due to the debt crisis in Europe. “There are a lot of things to be pleased about,” he says, including strong profits in the U.S. and larger market share in China.

In the first quarter, GM lost $256 million in Europe with a total loss of $16 billion since 1999. GM’s stock prices have dropped due to growing concern over continued losses in Europe and negative effects on profits in North America, where the company is undergoing the expensive changeover to the newest model trucks and SUVs, which are some of GM’s most profitable vehicles.

GM executives are also pushing for the U.S. Treasury to sell the governments 32 percent share in GM, which was a result of the government led bankruptcy a few years ago. Details and timing are up to the Treasury, which has yet to decide if the shares will be sold all at once or in small increments. Akerson recently spoke on CNBC, calling for a definite plan of action from the Treasury.

Akerson is also looking at cost cutting measures in engineering and marketing to make the company more profitable. The goal is to raise pretax profit margins from 6 percent in 2011 to 10 percent, putting GM on par with other industry leaders such as Hyundai Motor Company. To accomplish this automaker has announced a 50 percent reduction in globally used vehicle platforms by 2018 as well as other measures aimed at reducing development expenses by $1 billion annually. In addition, GM will be reducing media-buying and advertising agency spending by $2 billion over the next five years.

Akerson reports that GM is only about a quarter of the way through overall cost cutting efforts. “We’re looking at every aspect of the business in the same way,” he says.

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