GM could survive an Opel split

[nadepalma]

Good commentary and some interesting quotes:

But some insiders and experts say GM can get along without Opel if relations sour with Magna and the supplier's Russian partner, Sberbank. Opel, once a key part of GM's global operations, is far less essential in GM's smaller, post-bankruptcy world.

Here's why: The platform and engine work provided by the European company can be shifted to GM operations in South Korea and the United States.

Opel engineers are managing just one platform -- Delta for small cars -- that provides a substantial number of vehicles for the United States and Asia, such as the Cruze.

The larger Epsilon platform for mid-sized vehicles was moved from Germany to Detroit this year. Its first U.S. vehicle is the 2010 Buick LaCrosse sedan.

* * * * * * * * * * * * * * * *

Once-profitable Opel needs a huge infusion of cash. The current rescue plan calls for $6.7 billion of aid from German states with Opel plants.

Griffiths says German auto workers are paid 44 euros -- about $65.50 -- per hour, including wages and benefits. That compares with less than $10 in Poland, home of a joint venture plant that produces Chevrolets and Daewoos.

* * * * * * * * * * * * * * * *

One consultant who has discussed the issue with GM executives says the company has not determined its stance with Opel -- and in fact there is still sentiment within GM to regain full ownership someday. But the consultant says GM executives acknowledge that a total split is an option.

"They will not admit it, but that is the B plan," the consultant says. "Technically they could play this out for two or three years, but they have to make their core decision in about one and a half years."

For GM, the decision whether to keep close ties with Opel in the future boils down to this: Are the efficiencies of scale gained with Opel worth the high production costs, difficult profit potential, investment needs and executive distraction?

In the United States, the U.S. government decided that GM was better off shedding brands in U.S. Bankruptcy Court. GM could make a similar call on Opel.

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[O_Z]

Originally Posted by nadepalma

Good commentary and some interesting quotes:



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Wait a second
Epsilon was designed in Germany and design of LaCroose was done in China, is it?
So, now in US is only manufacturing facility, and facelift and redesign still is assigned to Opel?

[ColinOpseth]

What would Jeremy Clarkson say?

He'd say Opels and Vauxhalls are rubbish. Who'd want to buy one when you could drive a Maserati? Or a Zonda?

[avinarf]

Here in South Africa we Opel lovers are suffering from this sale, now in SA the only Opel's available is the Corsa and the locally built Corsa UTE. the new Astra and the rest of the Opel line up wont be entering the country.
Maybe GM should just rid its self from Opel if they dont know how to keep their customers happy this way maybe Opel will return to SA.
Wat do a i buy next year? A Chevy Cruze? I really dont think so...

[nadepalma]

To me, this is what it all boils down to:

"They will not admit it, but that is the B plan," the consultant says. "Technically they could play this out for two or three years, but they have to make their core decision in about one and a half years."

For GM, the decision whether to keep close ties with Opel in the future boils down to this: Are the efficiencies of scale gained with Opel worth the high production costs, difficult profit potential, investment needs and executive distraction?

In the United States, the U.S. government decided that GM was better off shedding brands in U.S. Bankruptcy Court. GM could make a similar call on Opel.

Opel is very expensive to run and they need a huge sum of money to right the ship. The best thing for the operation would have been to go into bankruptcy, shed the un-needed factories, costs, et al. and streamline the operation. This, as we know, wasn't politically appealing.

But this won't happen and now that Sberbank and Magna are in bed with the company, who knows how this relationship will develop down the line.

Regardless, GM has options.

I wouldn't want to see GM shed Opel, but if the new relationship becomes overly complicated, I'd rather see GM retain their intellectual property rights, shed Opel/Vauxhall, and concentrate on the Chevrolet brands in growth markets like Eastern Europe and Russia while trying to slowly increase Chevy's presence (and image/perception) in Western Europe.

At a much later time, they could introduce Buick (and make a real go of Cadillac?) in all of Europe to establish a more 'mainstream' brand; essentially making up for what Opel was in the GM pecking order. This would simplify things from a corporate standpoint, but agian, it would be FAR off from now.

GM Europe is in a better position in terms of know-how than they were years ago. The split with Fiat created a GM controlled diesel center of excellence in Torino and they could easily create other such centers separate from Opel if a spin off becomes a reality. Many of the intellectual and technology property rights either reverted to GM Europe or to GM North America. They just picked up a factory to produce Aveos in Poland and who knows if other facilities in Eastern Europe could become fertile ground for manufacturing expansions. And the Chevy brand is making good inroads in Eastern Europe and Russia.

From an investment perspective, Eastern Europe and Russia is where all the growth will be. If the split does come, this may be a way for GM to continue to operate in Europe, still create 'home grown' European models and move away from Opel in an orderly fashion...

...Just my quick take, but who the heck knows how this will end...

[Bravada]

From an investment perspective, Eastern Europe and Russia is where all the growth will be.

The "new EU" rapidly gravitates towards Western Europe in terms of automotive tastes and preference for "premium". GM DAT Chevrolets just won't cut it there as mainstream products. GM would need something to be on par with the Astra, Megane, Golf, 308 et al. to make it there. Russia is still a big market for bargain-basement cars, but "Western standard" vehicles are more and more popular as the middle class starts emerging.

In short, GM would need to build another Opel to maintain sales higher than the current Chevrolet level in Europe. I don't think it's worth it.

[SimonDavid]

Originally Posted by nadepalma

To me, this is what it all boils down to:

Opel is very expensive to run and they need a huge sum of money to right the ship. The best thing for the operation would have been to go into bankruptcy, shed the un-needed factories, costs, et al. and streamline the operation. This, as we know, wasn't politically appealing.

But this won't happen and now that Sberbank and Magna are in bed with the company, who knows how this relationship will develop down the line.

Regardless, GM has options.

I wouldn't want to see GM shed Opel, but if the new relationship becomes overly complicated, I'd rather see GM retain their intellectual property rights, shed Opel/Vauxhall, and concentrate on the Chevrolet brands in growth markets like Eastern Europe and Russia while trying to slowly increase Chevy's presence (and image/perception) in Western Europe.

At a much later time, they could introduce Buick (and make a real go of Cadillac?) in all of Europe to establish a more 'mainstream' brand; essentially making up for what Opel was in the GM pecking order. This would simplify things from a corporate standpoint, but agian, it would be FAR off from now.

GM Europe is in a better position in terms of know-how than they were years ago. The split with Fiat created a GM controlled diesel center of excellence in Torino and they could easily create other such centers separate from Opel if a spin off becomes a reality. Many of the intellectual and technology property rights either reverted to GM Europe or to GM North America. They just picked up a factory to produce Aveos in Poland and who knows if other facilities in Eastern Europe could become fertile ground for manufacturing expansions. And the Chevy brand is making good inroads in Eastern Europe and Russia.

From an investment perspective, Eastern Europe and Russia is where all the growth will be. If the split does come, this may be a way for GM to continue to operate in Europe, still create 'home grown' European models and move away from Opel in an orderly fashion...

...Just my quick take, but who the heck knows how this will end...

I totally agree.

Korea, China and now the US for the Epsilon provide GM with almost all the engineering skills they need. Opel, unless it can be radically restructured, is a high cost distraction with almost all its production capacity in stale western european markets. Chevy is big in Russia and developing markets and already has 2.3% overall in Europe.

There is an article in the UK's Car this month where Magna say they plan to break with GM platforms over the next few years anyway, and hint at building their own new non-GM architecture on cooperation with an emerging carmaker.

GM can manage without Opel.

[zete]

Originally Posted by nadepalma

:
From an investment perspective, Eastern Europe and Russia is where all the growth will be. If the split does come, this may be a way for GM to continue to operate in Europe, still create 'home grown' European models and move away from Opel in an orderly fashion...

...Just my quick take, but who the heck knows how this will end...

If you look at demographics, the growth for GM -- and the car industry in general -- is in the immature markets of Eastern Europe, Russia, China, and India. These markets are growing and their economies are growing, which will translate into a taste for automobiles.

Europe itself may well end up experiencing the issue Japan has faced, with flat or declining demand. That makes it harder for any firm with a large amount of debt load to make money as they try to compete. Add in the horror of the lower-end of the market that can easily be flooded with cars from Japan and Chevrolet in Eastern Europe and things suddenly get very iffy for Opel. This might be why GM was slowly moving Opel upscale. One to make room for Chevrolet, but two to make more money per vehicle to offset the costs of the brand.

[nadepalma]

Originally Posted by Bravada

The "new EU" rapidly gravitates towards Western Europe in terms of automotive tastes and preference for "premium". GM DAT Chevrolets just won't cut it there as mainstream products. GM would need something to be on par with the Astra, Megane, Golf, 308 et al. to make it there. Russia is still a big market for bargain-basement cars, but "Western standard" vehicles are more and more popular as the middle class starts emerging.

In short, GM would need to build another Opel to maintain sales higher than the current Chevrolet level in Europe. I don't think it's worth it.

No doubt. As the middle class begins to grow in the Eastern European and Russian markets, they will be looking for something much more substantial than a "typical" Chevrolet. (As a side note, this is also an argument for GM to better utilize its "core brands" in similar markets like South America and India. Those markets are slowly maturing and more and more customers will want something a bit upscale. They may want to consider how to position their remaining brands in those markets to take advantage of the upswing those economies will experience in the years ahead).

However, this entire thing is based on how the cooperation with Opel will progress moving forward. I wouldn't want to see GM lose control of Opel altogether. But, If Magna/Sberbank make the partnership difficult (and/or more money is needed to fix what ails Opel) then letting Opel go would be the better move in my honest opinion.

Yes, GM would be left without a "mainstream" brand for those middle-class customers, but eventually they could try and bring Buick over to offset Opel's loss. It would take years for them to establish Buick and take a lot of resources, but at least the brand would be "theirs" and they can take as much time as they need to do this. And, if they introduce the brand in markets like Eastern Europe first -- which seem more open to "American" brands -- then hopefully it will create a foothold they can exploit later.

I for would rather have a GM with a smaller, but profitable, footprint in Europe and room to grow/improve than spend money/resources on a possibly difficult/expensive/unwilling partner. Opel brings a lot to the table, but they aren't entirely irreplacable. Unlike Opel, GM has development and engineering resources in the US, South Korea, India, Europe, and Brazil that they could exploit further to make up for the "hole" in a Opel's possible departure. And since GM has moved to a single engineering/design budget and is now a slimmer company, there could be a lot of potential in better utilizing those other pieces of the empire to make up for Opel's exist.

Either way, GM is going to spend billions...they may as well try to have some degree of control.

[nadepalma]

Originally Posted by zete

If you look at demographics, the growth for GM -- and the car industry in general -- is in the immature markets of Eastern Europe, Russia, China, and India. These markets are growing and their economies are growing, which will translate into a taste for automobiles.

Europe itself may well end up experiencing the issue Japan has faced, with flat or declining demand. That makes it harder for any firm with a large amount of debt load to make money as they try to compete. Add in the horror of the lower-end of the market that can easily be flooded with cars from Japan and Chevrolet in Eastern Europe and things suddenly get very iffy for Opel. This might be why GM was slowly moving Opel upscale. One to make room for Chevrolet, but two to make more money per vehicle to offset the costs of the brand.

Agreed -- Especially that part at the end.

As GM slowly replaces the old Daewoo designed products with new world-products built in South Korea (the Cruze, next Spark, next Aveo, etc) some of the "cheapness" image should fade -- even if they WILL technically be competing more with models form Hyundai, Kia, and Proton than Ford, VW, or Renault.

Chevrolet may be a "low end" brand which is seen as "cheap" to many Western Europeans -- but I bet the brand is profitable. At the end of the day, that counts for alot. I think that even if GM were to lose marketshare in cutting ties with Opel down the line, they would still have a healthier financial balance sheet and profitable sales.

GM has already taken on an established factory in Poland. If GM were free of Opel down the line, they could eventually open other factorires to produce Chevrolet (and Buick?) models in Poland, Slovakia, Romania or other Eastern European nations. This would allow for "homegrown" European products to eventually supplant the South Korean sourced models...

...Still - this is a long way out and GM still needs to see how their relationship with the new Opel will develop...

[GMJoe]

Originally Posted by Bravada

The "new EU" rapidly gravitates towards Western Europe in terms of automotive tastes and preference for "premium". GM DAT Chevrolets just won't cut it there as mainstream products. GM would need something to be on par with the Astra, Megane, Golf, 308 et al. to make it there. Russia is still a big market for bargain-basement cars, but "Western standard" vehicles are more and more popular as the middle class starts emerging.

In short, GM would need to build another Opel to maintain sales higher than the current Chevrolet level in Europe. I don't think it's worth it.

A revitalized Buick is waiting in the wings.

[mbukukanyau]

Keep Engineering in Ngarmany and UK, move production to North America.

[Bravada]

A revitalized Buick is waiting in the wings.

Buick = Opel

For real now, unlike the 1960s.

[Bravada]

If you look at demographics, the growth for GM -- and the car industry in general -- is in the immature markets of Eastern Europe, Russia, China, and India.

You guys are forgetting one thing - growth is important for the future outlook, but a rife market is important for today's bottom line. North America and EU are the two only large markets for mature, premium vehicles, loaded with options, add-on services, with sustainable financing and aftermarket profit opportunities, finally with owners affluent enough to generate enough income from "fixed ops" (service) as they will be coming back to the dealer's garage and paying for branded service, parts and consummables more eagerly.

If Europe was that bad a market, why would so many automakers still exist in Europe and continue to develop their presence there? While many European automakers are not present in the US, all of the American, Japanese and many other automakers are present in Europe.

OTOH, it is a mature market, which is hard to crack. Nothing helps you better than an established customer base and brand equity. Without Opel, GM would be only marginally better than the Chinese automakers and even worse than Hyundai. People in Europe buy Opels, not GM cars. Chevrolet is a fringe brand bringing in sizeable results only due to CIS sales.

[stevecmh]

this really grinds my gears.. GM should Keep Opel.. they are some of their nicest cars