But Long Term Viability Still Questioned
“Opel and Vauxhall have lost $18 billion since 1999”
“GM hasn’t got long to turn it round; the next two or three years will be decisive”
It’s all gone quiet for now at General Motors Europe and its Opel and Vauxhall subsidiaries, thanks to some mildly positive news about the bottom line, an agreement, albeit it grudging, with unions, and protestations from Detroit that yes, it really, really is committed to the company long-term, come rain or come shine.
Some experts see the first signs of a turnaround with the possibility of eventual profits. Others remain to be convinced and reckon that unless this revival takes hold within two years or three years at the most, GM could still pull down the shutters and leave. Given that Europe is in the throes of an economic crisis which threatens to push car sales close to 20 year lows, that is a scenario that would derail the plans of the best performers in the automotive world.
It is a measure of Opel-Vauxhall’s predicament that news it lost only $175 million in the first quarter, compared with losses of $294 million in the same quarter a year earlier, generated such pleasure. Don’t forget that Opel, the mainly German-based arm of GM Europe which sells the brand across most of the continent, and the British-based Vauxhall have lost $18 billion since 1999, including $1.8 billion of red-ink last year. In the face of these mind-boggling losses, in 2009 GM pulled out of a deal to sell Opel to Magna International in a package engineered by the German government. Not surprisingly, a request a year later for German government financial help wasn’t well received.
GM management from Detroit has been putting on a charm offensive in Germany trying to convince unions and future customers that they are committed to the long-term, despite the closing of a factory in Bochum by the end of next year which the unions eventually agreed to. Last month GM CEO Dan Akerson met German Chancellor Angela Merkel after announcing a $5.25 billion investment plan through 2016 to develop 23 vehicles and 13 engines and break even by mid-decade. GM vice-chairman Steve Girsky recently said that Opel-Vauxhall, which sells around one million cars a year, should be able to make this work.
“This will be the most successful comeback in Europe’s automotive history,” Girsky said.
Adam Jonas, auto analyst with Morgan Stanley and long-term believer that GM should dump Opel, doesn’t think mid-decade breakeven is achievable and it will still be about $1 billion in the red, as Europe’s economy wobbles, and Japanese manufacturers are given new sales impetus by the falling yen.
“In our opinion, exiting Opel could be the best strategic option currently available to GM, and better long-term for Opel itself,” Jonas said in a report this week.
Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Science in Bergisch Gladbach, Germany, said Opel-Vauxhall has made some progress, but has to put its foot to the floor.
“It hasn’t got long to turn it round; the next two or three years will be decisive,” Bratzel said.
Bratzel is impressed by the appointment of former Volkswagen executive Karl-Thomas Neumann as Opel CEO.
“It’s a weak market for all the players with very high competition and VW, Daimler and BMW going into (popular) segments where Opel and Ford are. But GM is trying to go with Opel and trying to bring in new models to keep market share, or maybe increase it in coming years,” Bratzel said.
Bratzel pointed out that despite Europe’s weakness now, it might become very important again if China and the U.S. market start to waver.
Could GM dump Opel-Vauxhall?
“If it doesn’t turn around within two or three years, GM might lose interest, but it would not be a good solution because GM needs Europe and a big market share here. Europe might be weak now but in three or five years time it might turn around. Sales could reach maybe 16 million Withdrawing is not a solution for a global player like GM,” Bratzel said.
GM has a seven per cent stake in alliance partner Peugeot-Citroen of France. Bratzel doesn’t see this having much significance for GM long-term, not least because it has enough economies of scale of its own. Peugeot is also in big financial trouble, currently losing even more money than GM Europe.
Peter Schmidt, editor of the Automotive Industry Data (AID) newsletter, said that Opel-Vauxhall has suffered in the past because of lack of quality, and points to a recent survey in Britain by J.D.Power which ranked Vauxhall 26th and GM’s Chevrolet 27th and last in a consumer quality survey. Brands like Skoda, Volkswagen’s value-oriented subsidiary, now appears at the top of this survey, along with quality champions like Lexus.
“GM just treated Opel as a cash cow and then neglected to feed and care for that cash cow and the result was a continuously sliding market share in Western Europe since the early 1990s. In 1993 market share was 12.6 per cent. Now it’s almost half that,” Schmidt said.
But Schmidt does see the possibility of a silver lining.
“GM Europe has put muscle and marketing power behind the Opel brand and it is starting to show. In the first four months of 2013 there were the first signs of a turnaround with market share of 6.7 per cent, up from 6.6 per cent. That might sound small but it also shows the impact of the new models, and don’t forget this is an absolutely dreadful market,” Schmidt said.
Recent new Opel-Vauxhall models like the Adam city car and Mokka compact SUV have been well received, while the Cascada convertible was unveiled at the Geneva Car Show in March to some acclaim.
Professor Ferdinand Dudenhoeffer, head of the CAR auto industry think-tank based in Duisberg, Germany, isn’t so sure that Opel-Vauxhall will be around for the long term.
“I think there are still big problems in Europe and they are slow to act. I’m not sure if it is on the right track. The Adam and the Mokka are doing well, but there has been heavy discounting. In Germany in the first three months up to 40 per cent of their sales were pre-registered (sales to dealers not consumers),” Dudenhoeffer said.
Still there in five years?
He wasn’t that impressed with the first quarter improvement in losses, saying this was down to cost cutting, and less to improved sales.
Will Opel-Vauxhall be around in five years?
“We will see. At the moment you can’t answer that question and we will have to wait and look at the performance. The new boss Neumann hasn’t yet shown that he is driving in a new direction,” Dudenhoeffer said.
“Yes the Adam has had very good reports and I think that’s a positive fact for GM and for Opel. If they can keep on with Adam then it will be a positive element for the strategy. Meanwhile the weak market will continue for three or four more years and that is the most difficult problem and the most challenging for Opel and GM. In addition to the weak market, they have to reshape and reorganize,” Dudenhoeffer said.
AID’s Schmidt is much more positive.
“If GM gets it right it can not only save the brand but strengthen the foothold in the European market and perhaps turn it into a continuously profitable operation delivering double digit margins like Skoda, Hyundai and Kia (of Korea). But it will take determination and hard graft sustained over a number of years. It seems that significant new investment is there, new quality products are coming and Europeans are in control, rather than having U.S. management parachuted in who don’t understand local conditions,” Schmidt said.
“If they get it right, they can turn around Opel-Vauxhall and it make super profitable,” Schmidt said.
Neil Winton – May 15, 2013