Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

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Thread: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

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    Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    The Wall Street Journal
    February 16, 2017



    In the seven years since General Motors Co. last considered selling its European business, a major factor has changed: the world has soured on passenger cars.

    GM is in talks to potentially sell its Opel AG division to Peugeot. The German unit, acquired by the Detroit auto giant 88 years ago, has served as a primary development hub for the sedans and compact cars needed to satisfy demand in most markets and meet emissions requirements.
    Opel’s role has diminished as low fuel prices turn consumer demand away from cars toward the sport utilities or crossover wagons American engineers are known for. Even in Europe, where cars like Volkswagen AG’s Golf or Ford Motor Co.’s Mondeo have long been top sellers, auto makers are flooding the market with SUVs to accommodate shifting tastes.

    Certain passenger-car models, including redesigned Opel Astra and Chevrolet Malibu, have been selling relatively well. But GM executives said last month that selling more sedans actually hurts overall margins in key regions, and the auto maker is cutting production of certain models.
    The Opel deal discussions “could indicate GM is further stepping back” from passenger cars, a market “plagued by declining demand and overcapacity,” RBC Capital Markets analyst Joseph Spak wrote in a research note shortly after talks were confirmed.

    Opel has lost money since the late 1990s and having a large sales operation in Europe forces U.S. auto makers to meet a separate set of emissions rules than need to be met in their home market. GM came close to selling the unit in 2009 to Canadian auto supplier Magna International Inc., but backed off. It also attempted to launch Chevrolet in Europe, but that effort fizzled.

    Keeping the car-engineering expertise and certain diesel-engine development in house was a top reason for pulling out of the Magna deal. About $8 billion in losses have been generated by GM Europe since then, showing how costly that decision was.

    In 2009—fresh off its U.S. government bailout and bankruptcy—GM had pressing need to improve a car portfolio that had long lagged behind Toyota Motor Corp., Honda Motor Co. and other import brands. It was the gas-price spike in 2008 that froze sales of the Detroit Three’s gas-guzzling SUVs and pickup trucks, pushing the auto makers toward insolvency and highlighting the need for better, fuel-efficient cars offerings.
    That equation has been turned on its head in recent years amid lower amid lower fuel prices, forcing GM and other auto makers to cut production and offer profit-sapping discounts.*The shrinking importance of smaller cars and diesel engines in other parts of the world means GM’s scale in Europe “has become really difficult to leverage” outside of the region, said one person familiar with GM’s operations.

    The result is that better car lines haven’t provided the financial lift GM envisioned years ago.

    For example, last year the auto maker rolled new versions of its Chevrolet Cruze compact car and Malibu midsize sedan to critical acclaim. Car & Driver magazine, for instance, rated the Malibu higher than Toyota’s Camry and Honda Accord, two cars that dominate the segment.
    Malibu and Cruze sales rose—but that actually hurt GM’s overall profit margins in North America last year compared with the prior year, when highly profitable trucks and SUVs made up a higher percentage of sales.

    GM isn't giving up on small cars, but it can rely on its small-car development team at GM’s South Korean engineering center, acquired from Daewoo Motor in the early 2000s. The Chevy Bolt electric vehicle—released in December and touted by GM as a symbol of its engineering prowess—was jointly developed in South Korea and suburban Detroit.

    Analysts say GM would need an infusion of new SUVs, commercial vans and other new products to swing to a profit in Europe and boost its market share beyond 6%, which is about one-third of what GM has in the U.S. That would require an infusion of capital at a time when the company is investing more heavily in electric vehicles, self-driving cars and experiments in alternative forms of mobility.

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    Certain passenger-car models, including redesigned Opel Astra and Chevrolet Malibu, have been selling relatively well. But GM executives said last month that selling more sedans actually hurts overall margins in key regions, and the auto maker is cutting production of certain models.
    How the market has changed.

    ------------------------------------------------------------------------------



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    $159/month for 24 months. $1,059 due at signing for Current Lessees of 2008 or newer non-GM vehicles (after all offers)*.

    Tax, title, license, and dealer fees extra. $0 security deposit.
    Mileage charge of $0.25/mile over 20,000 miles at participating dealers.





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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    The market makes a good point. Perhaps GM is seeking to sell off Opel-Vauxhall because the passenger car market is shrinking in favor of SUVs/CUVs.

    While this is certainly plausible, in my mind, there's a couple of holes in this logic.

    First, GM might be looking to unload Opel because they have "other assets" to yoke and harness (specifically in China and GM Korea), and don't need "expensive" German operations to keep pace with the rest of the market. Those resources outside of Europe can develop passenger cars and crossovers, picking up the slack when Opel is divested. What's more, there's nothing to say that GM can't retain an engineering "center of excellence" in Europe post any divestment.

    Secondly, and more pointedly, even if passenger car sales are dwindling, the platforms those vehicles sit on are also used to develop CUVs. The article says, "Keeping the car-engineering expertise and certain diesel-engine development in house was a top reason for pulling out of the Magna deal." The author makes it sound as though these platforms and engines were only used to produce sedans and hatchbacks; which isn't true. These same platforms can/have/will be the basis for plenty of crossovers and MPVs. The fact would kind of underpin a reason to keep Opel, not sell them off.

    I think this is more than just about a market shift from cars/hatchbacks to SUVs/CUVs worldwide. I think this is about balancing the books, and refocusing money and resources in places that offer the best return on investment. I could be wrong, but I think it's that simple.
    Last edited by nadepalma; 02-15-2017 at 09:39 PM.
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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    It's interesting because the automakers clearly see a future that really isn't here yet and making significant decisions well ahead of time. The move to Crossovers is a permanent form factor change in the automobile, the sedan is about to be as quaint and obsolete as the station wagon. But the other big change here is electrification, ride sharing, and autonomous tech which further changes the demographics of car owners. But it's clear at this stage that the US market, the most profitable market in the world, is evolving very quickly.

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    If they built cars people wanted to buy there wouldn't be an issue

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    Quote Originally Posted by steve333 View Post
    If they built cars people wanted to buy there wouldn't be an issue
    I was thinking the same thing.
    Pony Car: an affordable, compact, highly styled car with a sporty or performance-oriented image and an available V8.

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    Quote Originally Posted by nadepalma View Post
    The market makes a good point. Perhaps GM is seeking to sell off Opel-Vauxhall because the passenger car market is shrinking in favor of SUVs/CUVs.

    While this is certainly plausible, in my mind, there's a couple of holes in this logic.

    First, GM might be looking to unload Opel because they have "other assets" to yoke and harness (specifically in China and GM Korea), and don't need "expensive" German operations to keep pace with the rest of the market. Those resources outside of Europe can develop passenger cars and crossovers, picking up the slack when Opel is divested. What's more, there's nothing to say that GM can't retain an engineering "center of excellence" in Europe post any divestment.

    Secondly, and more pointedly, even if passenger car sales are dwindling, the platforms those vehicles sit on are also used to develop CUVs. The article says, "Keeping the car-engineering expertise and certain diesel-engine development in house was a top reason for pulling out of the Magna deal." The author makes it sound as though these platforms and engines were only used to produce sedans and hatchbacks; which isn't true. These same platforms can/have/will be the basis for plenty of crossovers and MPVs. The fact would kind of underpin a reason to keep Opel, not sell them off.

    I think this is more than just about a market shift from cars/hatchbacks to SUVs/CUVs worldwide. I think this is about balancing the books, and refocusing money and resources in places that offer the best return on investment. I could be wrong, but I think it's that simple.
    I think you are probably more "onto it" than the author of the story.
    Quote Originally Posted by steve333 View Post
    If they built cars people wanted to buy there wouldn't be an issue
    Ditto that sentiment. Fire some designers and bean counters.

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    I mean, if all of your mass market sedans are simply anonymous four door transportation appliances - what do you expect?
    Pony Car: an affordable, compact, highly styled car with a sporty or performance-oriented image and an available V8.

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    Would the solution not be just building SUV's instead of selling the baby with the bath water?

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    Quote Originally Posted by 1958carnut View Post
    I think you are probably more "onto it" than the author of the story.
    Thanks for the thumbs up. I appreciate that. I wonder if the WSJ would run my analysis side-by-side? :-)
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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    Quote Originally Posted by nadepalma View Post
    What's more, there's nothing to say that GM can't retain an engineering "center of excellence" in Europe post any divestment.
    But why? The main reason to engineer in Europe is to meet the requirements of that market. If GM isn't willing to sell cars in Europe, why bother keeping an engineering center there? Not like there are unique skills in Europe that can't be found elsewhere.

    I do agree with you that this is likely not about the market shift. As I said elsewhere, GM needs global brands. Opel is not global and is a roadblock in potentially making Chevrolet global (no, Chevy isn't global today but could be in the long run). So there is potentially good long-term strategy here except I have no faith that anyone at GM thinks long-term. This is more likely about short term margins.
    Last edited by emh; 02-15-2017 at 11:33 PM.
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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    Quote Originally Posted by emh View Post
    But why? The main reason to engineer in Europe is to meet the requirements of that market. If GM isn't willing to sell cars in Europe, why bother keeping an engineering center there? Not like there are unique skills in Europe that can't be found elsewhere.

    I do agree with you that this is likely not about the market shift. As I said elsewhere, GM needs global brands. Opel is not global and is a roadblock in potentially making Chevrolet global (no, Chevy isn't global today but could be in the long run). So there is potentially good long-term strategy here except I have no faith that anyone at GM thinks long-term. This is more likely about short term margins.
    first I agree with your statement BUT also think GM is MORE interested in GROWING /"westernizing" markets VS Europe that is getting quite ANTI-CAR and has LITTLE growth in it over the next 10 or so years

    I could see an ELECTRIC / VOLTEC focused CHEVY return to the OLD continent in 10 or so years when BOTH GM has "Perfected" EV cars/batt tech and EU markets have switched MOSTLY to ELECTRIC

    and for "OPEL design - engineering" the Diesel tech-know how is NOT needed if you are NOT playing in Europe and Asia has for the MOST part taken to Hybrid/EV cars more then DIESEL ones

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    I wonder if they would sell the same product world wide instead of have different product in Europe would bring in a profit in Europe. Ford started doing this about 10 years ago and has great results do to it. I know there are different requirements in each area but other auto makers do not have a problem. I see no need for Opel and Holden as different automakers even if they kept the name it does not need to be different car company just a different label on each car.

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    Quote Originally Posted by steve333 View Post
    If they built cars people wanted to buy there wouldn't be an issue
    Exactly - the global switch to CUV/SUV isn't new by a long way - most of the other auto groups have had multiple generations of them - Opel/Vauxhall has been desparately lacking in CUV/SUV and from comments on GMI, so have Chevrolet, Buick and Cadillac.

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    Re: Opel 'Discussions' May Indicate GM Is Stepping Back From Passenger Cars

    In the short term there is more money to be made with the CUV.

    But I always thought that a car manufacturer should have a diversified portfolio. Ten years ago, oil prices rose sharply and the market switched to more efficient cars. GM was not ready to produce small cars and compensated by bringing here low quality Deawoos sold under the name Chevrolet Aveo.

    Fuel prices seem to be low for several more years. But let us not forget that the international situation can change rapidly. Imagine for a moment that Iran is mining the Strait of Hormuz at the same time as a major pipeline has an accident: the price paid at the pump could double.

    GM, FCA or others may be tempted to increase the dividend by putting all the eggs in one basket. This is understandable and short-term shareholders want that. But do we want GM to make a profit for only a few years or GM to be viable for a long time?

    My last argument to keep cars: lower prices help attract new buyers who have lower incomes. If these consumers are satisfied with their car purchases there is a good chance that they will return to GM when they have more money.
    Last edited by YesImOld; 02-16-2017 at 08:57 AM.

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