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GM Europe’s Opel-Vauxhall Expected To Make Money At Last

But Sales Revenues Set To Stagnate Through 2021.

Chronic loss-maker General Motors Europe will finally start making money next year thanks to cost cutting and restructuring, but sales will remain stagnant through the rest of the decade.

That’s the conclusion of a report from Morgan Stanley.

Morgan Stanley has also raised its estimate of the value of GM Europe by $4.5 billion, although that’s not as good as it sounds. The investment bank now reckons the company, comprising mainly German-based Opel and British brand Vauxhall, is worth a negative $11.5 billion, compared with its previous estimate of a negative $16 billion.

Opel-Vauxhall has been a serial value-muncher. It lost $1.8 billion in 2012, and has notched up a scarcely credible $18 billion in red ink since 1999. Morgan Stanley now believes it will lose $837 million in 2013. GM Europe has said it will break-even by mid-decade, and Morgan Stanley analyst Adam Jonas now believes it is on target, just.

“We estimate GM Europe will generate $0.4 billion of combined profit over the next four years. We have improved our forecast for losses at GME further to $260 million in 2014 versus our estimate of $837 million in 2013, with a positive margin of one per cent for 2015 and 2016,” Jonas said in the report.

Revenues will grow, but not by much.

“We forecast Opel’s revenues to stagnate from roughly $20.1 billion in 2013 to $20.4 billion by 2017 on a backdrop of a shallow European recession. From this point we grow Opel revenue at between one and 1.5 per cent through 2021,” Jonas said.

Last month, GM Europe announced it would withdraw its Chevrolet brand in 2015 from Europe. Jonas said dumping Chevrolet will cost $900 million, but will have a four-year payback, adding more than one percentage point to pre-tax margins.

News of the promotion of Mary Barra last month to GM CEO led to speculation that the long-term plan to retain and turnaround Opel-Vauxhall might yet be dumped. While news broke of Barra’s appointment, it was announced that Opel-Vauxhall supporter Steve Girsky was leaving his job as GM vice-chairman. Morgan Stanley’s Jonas had argued that it would be better for GM to shut-down Opel-Vauxhall and cut its losses.

GM was close to pulling out in 2009, but it spiked a deal to sell Opel to Magna International in a package engineered by the German government.

“We believe GM’s opportunity to extricate itself from Opel has passed, at least for this cycle,” Jonas said in the report.

Opel is said to have a strong role to play in providing engineering and design for GM’s global small and medium-sized cars, and diesel engines. Any thoughts GM might seek closer ties with Peugeot-Citroen of France died with news last month it sold its seven per cent stake. But collaboration agreements still survive.

Bochum closing
GM Europe has been restructuring and has announced the closure of one plant in Bochum, Germany. Earlier this year it announced a $5.25 billion investment plan through 2016 to develop 23 vehicles and 13 engines.

In 2012, Opel-Vauxhall sold 794,000 cars in Western Europe for a market share of 6.7 percent. This market share was maintained in 2013, and might increase slightly in 2014. Opel-Vauxhall’s new products like the little Adam city car and the revamped Insignia would bolster sales.

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