Much more than a single ocean separates North America from Europe. Differences in everything from the meaning of football to the edibility of snails make these two regions profoundly dissimilar despite a wealth of shared heritage.
Some aspects of our cultures have found mutual overlap, such as the Finnish mobile game Angry Birds or the huge quantities of Heinz Baked Beans sold in the UK. Others appear to be as compatible as oil and water — EuroDisney, for instance, or the 35-hour work week.
Few American industries have found it harder to penetrate the twenty trillion-dollar European market than our automobile manufacturers. General Motors has decided they’ve had enough of a failed proposition and appear to be cutting bait altogether in the world’s third-largest market.
GM’s example reflects a long-term trend of American automakers becoming more and more inclusive. While Germany, Japan, and South Korea all export far more vehicles than they import (the ratio for Japan is profoundly lopsided, with six cars exported for every one imported), the United States imports more cars than the next three nations combined. What’s more, our car exports stay close to home, with Canada claiming nearly half.
The only European nations who import more than 10,000 American cars per year are Germany and the UK, meaning that the American car sales in nations like France, Italy, and Spain are little better than those of Nigeria, Bahrain, or Panama.
Criticisms of American cars in Europe sound surprisingly similar to criticism of European cars in America: unreliable, expensive, difficult to fix, and poor fuel economy.
It adds up to a frustrating European market, especially as growth in China, Australia, and parts of the Middle East has been particularly robust. Not even a major invigoration of taxpayer dollars during Obama’s bailout sprees have proven effective at promoting and selling American cars in the EU.
General Motors has decided they’d prefer to liquidate their operations in Europe rather than continue to drown in a sea of red ink. In a record-breaking deal, GM sold some two billion dollars’ worth of facilities, stock, parts, and operations to Peugeot, the French manufacturer of beautiful but prohibitively expensive sports cars like the Fractal.
The move not only takes GM out of the race, but boosts Peugeot up to the status of the number-two auto manufacturer on the continent, behind only Volkswagen.
GM states that they’re happy to withdraw from a market that hasn’t been profitable since the 1990s. Detroit’s largest auto manufacturer noted that their company’s goals include clamping down on “money pit” operations that require a sea of cash but return little dividends.
They’re not totally in the clear, however, as they’ll be on the hook for generous European pension obligations. This painful fine print could add up to billions of dollars; Spain’s pensions demand that former employees receive a pension equal to a staggering 80% of final wages, a cautionary tale that explains why the Eurozone is constantly on the brink of collapse.
Yet GM’s not complaining, as their accountants can write down the noncash charges, while Peugeot has forked over half a billion dollars in cash to lubricate the wheels of the deal.
The move raises significant questions for a cornerstone of the American economy. One of the great initiatives of President Trump has been to revive the auto manufacturing sector and one of the first business meetings he had in the White House brought together the CEOs of the Big Three to discuss future operations within the United States.
Almost immediately after the election, Ford announced the cancelation of plans to move a manufacturing facility to Mexico, signaling a huge victory for American auto workers whose pay is nearly twice the national average.
As welcome as the slogan of buying American and hiring American seems after Obama’s willingness to let jobs evaporate, companies like GM that found it hard to compete overseas will never provide as much value to investors as those that can (including but not limited to international phenoms like Apple, McDonalds, or Chase).
Trump’s proposed 35% tariff on imported vehicles will provide a huge domestic boost to American auto manufacturers, but American car companies want to grow and thrive they, like any business, need to conquer new markets, not re-conquer old ones.
Regards,
Ethan Warrick
Editor
Wealth Authority
