Big Three Bracing For Bad News From Overseas

Folks in Detroit could be in for some bad news in a few weeks, and that has nothing to do with who they're planning to vote for in the upcoming election.

In fact, General Motors and Ford will be rolling out their third-quarter earnings just in time for the presidential balloting, and while the U.S. economy has buoyed the industry at a level few might have expected at the start of 2012, the latest quarterly numbers will be hard hit by events on the other side of the Atlantic.

Between them, General Motors and Ford are likely to lose in excess of $500 million – some analysts put the red ink closer to $ 1 billion – for the July-September quarter. And for the full year, the domestics could run up a deficit closer to $4 billion if you include Fiat SpA, the Italian partner of Chrysler, according to analysts' consensus estimates.

Paul Eisenstein Paul A. Eisenstein is Publisher of and a 30-year veteran of the automotive beat. His editorials bring his unique perspective and deep understanding of the auto world to Autoblog readers on a regular basis.

Of course, the Detroit makers aren't alone. With Greece yet again likely to need more aid and Spain racked by riots touched off by government spending cuts, the Continental car market has been heading into a worsening spiral. "The turning point came in August, when even the strongest makers posted declines," suggested Susan Docherty, the head of Chevrolet Europe, during a conversation at the Paris Motor Show.

For his part, Renault/ Nissan Alliance CEO Carlos Ghosn said he is "not very bullish" about the European industry's fate: "We do not see a rebound in Europe for several years." With only a few exceptions, the entire industry has been hard hit. PSA Peugeot Citroen is expected to soon seek a bailout from the French government. And Ghosn might have been forced to do the same for Renault if it weren't for the stronger, Japanese side of that alliance.

For the first half of this year, Opel was losing 938 Euros – about $1,200 – for every car it sold.

But Detroit manufacturers are clearly among the hardest hit. Through the end of August, Ford of Europe had posted the Continent's sharpest overall sales decline. GM's European operations weren't far behind, however, especially the once-proud Opel brand. Not all that long ago, the century-old marque was a serious contender, a strong challenger to the other German-based mainstream maker Volkswagen. But today, it's withering away at a frightening pace. The subsidiary lost $747 million last year and, in December, warned that would likely surge to $1.3 billion for 2012, the 13th consecutive year in the red. Yet now it's looking like that was an entirely too rosy forecast.

For the first half of this year, noted the Center of Automotive Research at the University of Duisburg-Essen, Opel was losing 938 Euros – about $1,200 – for every car it sold. True, the Chevrolet brand has been surprisingly strong – and Docherty expects another five-percent growth for all 2012 despite the Continent's problem – but it is far too small to offset the Opel disaster.

Both Ford and GM are caught up in the European maelstrom, but they're also struggling to rebuild brand identities that have tarnished or simply evaporated in recent years. Product will help, proclaims Docherty, and both companies have plenty on the way. Ford got a jump on the Paris Motor Show with an Amsterdam preview that revealed a vast array of offerings from minicars to the next-generation Transit van, which will soon replace the aged Ford E-Van in the States.

The GM Vice Chairman has learned the hard way that nothing moves fast in Europe – except, perhaps, street protestors dodging the police.

Opel staged one of the oddest previews at the Paris show, trotting out a multilingual group of rappers to help reveal its new Adam city car. That's one of 23 new offerings promised for the next four years by Steve Girsky, the acting overseer of General Motor's latest effort to turn around its European operations. But the former Wall Street auto analyst and GM Vice Chairman has learned the hard way that nothing moves fast in Europe – except, perhaps, street protestors dodging the police. His plan to close a redundant German assembly plant has won reluctant union approval but still won't happen before 2014.

If Girsky wanted to get a better picture of what he'd go up against, he could've simply called Fiat/ Chrysler CEO Sergio Marchionne, the Canadian-educated executive routinely rails against European obstacles to competitiveness. As the head of the Continent's auto trade association ACEA, Marchionne has been trying to put together a unified plan. But bringing his members in line has been harder than herding cats. And he has come under attack from the ever-more powerful Volkswagen, a spokesman for CEO Martin Winterkorn going so far as to suggest Marchionne was unqualified to lead the organization.

The Fiat/Chrysler chief fired back, accusing VW of creating a "bloodbath" with incentives some believe run as high as 30 percent of list price on many of the German maker's products.

She and others representing the Detroit makers admit that Europe is a disaster that is only complicating matters back home.

Marchionne and Winterkorn met in a private ACEA session during the auto show press days and came out with game smiles and a handshake for the cameras. But the meeting likely did little more than paper over their differences. As many inside the industry believe, VW is willing to draw down its hefty bank account in the hopes of crushing some of its rivals. Considering its goal of becoming one of – if not the – global top-seller before decade's end, that would seem plausible.

Even if it's not true, the market may be accomplishing that for the German giant. Morgan Stanley auto analyst Adam Jonas recently called on GM to dump Opel and he's by no means alone. For now, the maker insists it's in Europe to stay – and Docherty insisted there are no contingency plans to replace Opel with Chevy, if necessary.

But she and others representing the Detroit makers admit that Europe is a disaster that is only complicating matters back home. It is for Ford CEO Alan Mulally the wart on the face of his otherwise beautiful corporate revival plan. For GM's Dan Akerson, it is the primary reason behind the maker's stock slump since its November 2009 IPO. For Chrysler, well, in a great bit of irony, the once-bankrupt U.S. company may soon be returning the favor to Fiat, the white knight that pulled it out of bankruptcy barely three years ago.

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