[lbo-talk] Europe's a slow coach, US cos want to jump off

uvj at vsnl.com uvj at vsnl.com
Sun Oct 24 07:02:19 PDT 2004


The Economic Times

Friday, October 22, 2004

Europe's a slow coach, & US cos want to jump off

REUTERS

CHICAGO: US manufacturers are having a hard time with the European market as slow growth and cut-throat competition have squeezed profits at many companies, leading some to cut back in the region and others to concentrate on seizing market share.

With Europe at best a slow-growth region, especially in the West, the outlook is not likely to change any time soon.

Companies such as GM are slashing jobs, and others, such as motorcycle maker Harley-Davidson, offer lower-than-expected production goals.

"That's really the slowest growing area of the world right now," said Alexander Cutler, chairman & CEO of Eaton Corp, a maker of a range of hydraulics, auto and truck parts, as well as electrical products.

"Europe has not yet started to come on and it is an important export partner for the US. We think Europe will start to have some positive growth in '05-06."

That's not to say investment in Europe will dry up as the region has too long a history for Asia or Latin America to pass it any time soon.

At the end of '03, Europe accounted for almost half of the $378bn in total value of investments abroad by US manufacturers, according to Manufacturers Alliance/MAPI, a public policy and business research organisation.

However, manufacturing production in Europe is expected to increase only 2.5% this year, compared with 6% in the US and 8% globally, the manufacturing group said.

China is currently growing faster than 20%, though that pace is expected to cool, and Japan is expected to rise 5%.

"If you're looking at opportunities, where would you invest? In an economy growing at 2% a year or an economy that's growing 6-7%?" said Dan Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

"You're going to look at the emerging economies that are growing rapidly."

Europe, especially western Europe, makes it harder for itself with stringent labour laws and EU economic requirements, officials said.

GM's European operations said earlier this month it would slash its work force by around a fifth, cutting as many as 12,000 jobs, in a bid to halt chronic losses.

Officials at the world's largest automaker said the cutbacks, especially in Germany, are necessary because demand and pricing in Europe remain feeble amid intense competition.

GM is not alone in its struggles, however, as Ford Motor's Jaguar brand is cutting 1,150 jobs in Britain in a bid to return to profits.

Harley-Davidson this month provided a lower-than-expected production goal for '05, citing weakness in the international markets, including Germany.

All these problems put a high premium on improving operating efficiency to cut costs and stealing market share to lift sales and profits faster than the market, executives said.

"Our focus in Europe is to increase penetration where we can, make sure our cost structure is in line, our margins in Europe continue to get better," said 3M's CFO Pat Campbell.

And not all of Europe is suffering equally as such central European countries as Poland, Hungary, Czech Republic and Romania are seeing higher levels of investment due to lower costs and more flexible work rules.

"We're focusing our efforts on making sure that we're growing resources in the former central Europe part of the region," 3M's Campbell said.

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