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This Is How Much Brexit Could Hurt GM This Year

General Motors reported its European operations were profitable in the second quarter, but warned of losses in the second half of 2016 due to Brexit.General Motors reported its European operations were profitable in the second quarter, but warned of losses in the second half of 2016 due to Brexit.
General Motors reported its European operations were profitable in the second quarter, but warned of losses in the second half of 2016 due to Brexit.Photograph by Getty Imges

After a five-year drought, General Motors’s European operations finally turned a profit, earning $137 million in the second quarter. Now Brexit—the U.K.’s decision to leave the European Union—threatens to slow the automaker’s turnaround in the region.

Prior to the results of the Brexit referendum in June, GM was on track to break even for the year, Chief Financial Officer Chuck Stevens said during an earnings call with investors on Thursday, making special note of the company’s results for the first half of 2016. GM Europe reported adjusted earnings before interest and taxes of $131 million for the first six months of 2016, compared to a loss of $284 million during the same six-month period last year.

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The U.K.’s decision to exit the EU has weakened the British pound, which will impact GM and its European brand Opel.

“The result of the vote has adversely impacted the British pound, and the uncertainty has put a strain on the U.K. auto industry,” Stevens said. “If current post-referendum market conditions are sustained throughout the remainder of 2016, we believe it could have an impact of up to $400 million to the second half of 2016.”

The weakness of the British pound will drive much of those losses, Stevens said, adding that in spite of this challenge, GM remains focus on turnaround plan in Europe. “It is early days, and very uncertain,” said Stevens.

Opel CEO Karl Thomas Neumann, in a video posted on his Twitter account, took a darker view.

“We are facing strong headwinds at the moment, particularly in our largest market, the United Kingdom,” Neumann says. “The Brexit decision is not a good omen. Therefore, the second half of this year is going to be anything but easy.

Stevens didn’t provide specific plans on how the company might try to mitigate those losses in Europe, only saying the company will look to optimize its overall cost structure, which could include pricing, model mix, or “footprint,” in possible reference to factory locations.

GM reported a strong quarterly performance in its worldwide operations.

GM reported that its second quarter net income rose to $2.87 billion up from $1.1 billion a year ago. The automaker raised its forecast for full-year earnings to between $5.50 and $6.00 per share for full-year 2016, up from a previous forecast of $5.25 to $5.75 per share.