GM's Plan for Europe

GM's need for money does not restrict itself to the US market. The company's European division is waiting to find out the overseas events that will affect its operations. GM‘s European activities are expected to produce significant negative earnings and cash flow in 2009 and 2010. However, the American manufacturer hopes its operations will bring positive results sometimes in the 2011-2014 timeframe.

In the report submitted yesterday, General Motors has revised the forecast of its global gross domestic product (GDP) to -0.6 percent, the first such decline in the post-World War II era. Western Europe alone, where GM has its biggest operations, is expected to decline by 1.8 percent.

General Motors asked its European subsidiaries to achieve $1.2 billion cost reductions in 2009, including the closures of several plants in high cost locations. The main issue for GM in Europe is the near-term lack of liquidity and the company is trying to secure further money from European governments. The automaker expects to resolve solvency issues for its European operations prior to March 31.

The bad news for the European-based GM is that the terms and conditions of the U.S. Federal loans limit the manufacturer from spending the money outside of the US. As a result, any European operations that are significant net users of cash during the plan timeframe need either to restructure or obtain support from their local governments.

No specific GM Europe factories have been targeted just yet, nor have any details been released on the fate of some of the company's European assets, such as Opel. "With Opel we're in the midst of working with various parties including the German government on all options," GM CEO Rick Wagoner was quoted as saying by Autonews.

All things considered, even if GM gets the money it needs, people will lose their jobs, as 26,000 workers out of the 47,000 projected cuts mentioned in Tuesday's report will come from the outside of the US.