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Analysis: Opel faces an uncertain future

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#1 ·
Opel faces an uncertain future
NEWS ANALYSIS
Automotive News | September 12, 2011

DETROIT/RUESSELSHEIM (Reuters) -- Near the peak of General Motors Co.'s financial crisis, Opel workers laid a coffin at the feet of the brand's founder Adam Opel to mark what they considered the death of the brand.

Two years after the workers rallied by the large bronze statue outside the unit's flagship Ruesselsheim plant to voice their dismay that GM would not sell Opel as they had hoped, the almost 150-year-old European automaker may not be dead, but its long-term future is uncertain.

"It's not the biggest money maker we have," GM Vice Chairman Steve Girsky said last week. "I'm not in denial on that."

GM CEO Dan Akerson, who voted against keeping Opel in a board meeting in 2009, is now charged with saving the automaker. The dilemma is to squeeze profits out of Opel and ensure it has the products to fend off rivals, while still allowing Chevrolet to take the lead as GM's mass-market champion around the world.

Akerson said in 2009 that Europe was a market of national champion automakers -- Volkswagen AG in Germany, Fiat S.p.A. in Italy and Renault SA in France -- and pan-European luxury brands like BMW AG and Daimler AG's Mercedes-Benz, according to a person familiar with Akerson's thinking.

After emerging from bankruptcy in 2009, GM dropped plans to sell Opel to Canada's Magna International Inc. following months of negotiation, and launched a restructuring to get the unit, which lost $1.6 billion last year, back on track.

In June, however, reports surfaced that GM was again eyeing a sale, something Akerson did not deny until late July. GM executives have said Opel's restructuring is on track and the business remains a key part of their global strategy.

"They had to think about selling it (in 2009) to help the parent company survive," said a banker active in the automotive sector who asked not to be identified. "Today, Opel is still suffering from the lack of a vision of how to move forward."

Not flipped overboard

Girsky emphasized Opel's importance to GM at a Credit Suisse conference, saying it was critical to GM's scale and technology.

"People tend to view Opel as this thing you can just flip overboard and that's sort of not the way we view it," he said. "We view it as something that's integral to GM."

GM can point to positive signs for Opel and its European operations, which in the second quarter posted its first profit since the bankruptcy with $102 million in earnings before interest and taxes. That included $100 million in restructuring costs.

GM Europe, which includes UK sister brand Vauxhall, expects to break even this year and show a profit in 2012.

Through June, Opel/Vauxhall's sales in the European Union rose more than 2 percent, while the overall market fell by a similar amount, according to the European auto industry association ACEA. Market share rose to 7.6 percent, or third in the region, and shifts were added at Ruesselsheim and plants in England and Poland.

Opel will provide a glimpse of its future at the Frankfurt auto show on Tuesday, unveiling a concept two-seat electric car inspired by the Opel Ampera plug-in electric car scheduled to go on sale in the fourth quarter.

In addition, Opel is looking to export to more markets, having added Israel this year with plans to enter Chile and Australia in the next few months, as well as boost sales in the world's largest auto market in China.

However, GM executives have been clear where Opel stands in its lineup, calling it a regional brand supporting the global aims of the mainstream Chevy and luxury Cadillac brands.

Opel executives and workers chafe at being limited largely to Europe, saying if the Detroit executives would only get out of the way the brand could grow around the world. That "Us versus Them" mentality is still apparent at times in the way GM executives frame the challenge.

"Opel will be successful, and I would argue only successful, if they leverage what we have to offer at GM," said Girsky, adding Opel's products need to be consistent with GM's.

Devil and the deep blue sea

Opel is revamping its designs and adding technology in its cars to give them more cache, but it will be a tough sell in a crowded market, analysts said.

"I can't see that being the magic bullet for increasing their sales volumes and profitability," IHS Automotive senior analyst Tim Urquhart said of Opel moving up market. "Opel is caught between the devil and the deep blue sea."

Further squeezing Opel is GM's desire to make Chevy even stronger globally, boosting that brand's share of the company's global sales to 65 percent in 2016 from about 61 percent last year, while Opel stays flat at 13 percent. CEO Akerson has said GM's long-term plan is to build Chevys in Europe.

Urquhart suggested a sale, partnership or dumping the brand remain possibilities, but GM would likely give Opel at least 10 years before deciding.

Other analysts and bankers said dumping the brand would cost GM sales in the region, while rebuilding Opel's image could take decades based on VW's turnaround of its Audi luxury brand.

MORE AT: http://www.autonews.com/apps/pbcs.dll/article?AID=/20110912/COPY01/309129741/1193
 
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#2 · (Edited)
Intersting analysis after what we read yesterday in the "GM will keep Opel for at least 10 years, spokesman says" thread. However, some of this seems plausibly valid.

Nevertheless, I wonder how much of this is really due to GM losing patience not only with the unions and some of the sentiment at Opel, but also GM's lingering anger with the German government? Regardless of what others think of Opel as a brand, the engineering/design/production capabilities of Adam Opel AG wouldn't be completely lost if the brand were either phased out, sold, or some other scenario. In fact, I'd guess that if GM were to sell the brand at some point down the line, they'd sell off some facilities and any rights to the Opel (and/or Vauxhall) name, but not all of their design/engineering/IP capabilities. It could end up being somewhat like GM's divorce from Fiat a few years back: Those who were involved in the joint venture on engines and platforms would/could get absorbed into a new entity and continue working, just like GM Powertrain Europe in Turin (which works on diesel development).

Could something like this happen with Opel if they ultimately lose patience?

Could GM replace Opel with Buick in Europe, take the hit in volume and production, but make up for it having more profitable sales and grow the brand organically?

Or could they simply allow Opel to expand into new markets long-term to keep the brand viable?
 
#9 ·
Could GM replace Opel with Buick in Europe, take the hit in volume and production, but make up for it having more profitable sales and grow the brand organically?

Or could they simply allow Opel to expand into new markets long-term to keep the brand viable?
My vision for GM Europe involves continuing to try and cement Chevrolet in Europe as a strong competitor to brands like Volkswagen. Not an easy thing to do and it's definitely a long term commitment for GM. Hopefully the UK will be one of the quicker paced projects and will allow for GM to get rid of Vauxhall. Could Vauxhall go to Tata and prop up JLR as their mainstream brand? Just a thought, but the primary goal is to not need Vauxhall. Opel will take much longer I would figure, but eventually GM Europe will ideally not require Opel, and they can become independent or whatever (either way, gone from GM's wings). Chevrolet would be THE de facto GM Europe brand with Cadillac taking luxury. There's no real room for Buick as very little of Europe buys mid-grade cars, hence the niche status of brands like Saab and Volvo to begin with. Chevrolet Europe takes up most of what Buick would and Cadillac takes a little but is mostly firm luxury.

JMO
 
#3 · (Edited)
GM Needs to do something to reassure Opel customers that the company will remain stable. Perhaps some significant investments, or a direct tie up to Buick and Holden would help opel get more sales worldwide which is what Opel needs.

I suspect Volkswagen is driving this whole risk factor.

It makes no sense that GM would be rid of Opel. They would virtually wipe themselves out in Europe, and why do they not integrate Opel better into Global GM? Plus Opel is profitable ahead of GM's set schedule. What is going on with GM's board? Will they let the Germans bully them the way they are trying to bully Suzuki and messed with Chrysler?

Dan seems to be a problem because no one believes he is committed to Opel. I hope when Mark Reuss becomes CEO he can make moves to secure Opel for GM in the long term.
 
#4 ·
or a direct tie up to Buick and Holden would help opel get more sales worldwide which is what Opel needs.
That's the point. Opel makes enormous efforts for cars like the Astra Wagon or the Zafira but these cars cannot be sold worldwide. So although they are very successful, they do not make money. Opel needs access to all markets - why not rebadged as Buick or Holden?
 
#5 ·
While Opel isn't a top tier company in Europe, it is respectable, and should be used as the beach-head to broader GM penetration into Western Europe, Eastern Europe, Russia and other markets where Opel is a player.
There is no reason why Opel couldn't assemble Malibus, Regals and Insignias at the same plants, why Opel couldn't propel electric car sales throughout Europe, why Opel couldn't be a Cadillac "outlet" that gives Cadillac the sales and service needed, while also allowing sales of other GM products such as the Commodore to be sold in Europe.
Opel isn't going to be VW, MB or BMW, but it can become the GM entry point to Europe.
 
#6 ·
While Opel isn't a top tier company in Europe, it is respectable, and should be used as the beach-head to broader GM penetration into Western Europe, Eastern Europe, Russia and other markets where Opel is a player.
There is no reason why Opel couldn't assemble Malibus, Regals and Insignias at the same plants, why Opel couldn't propel electric car sales throughout Europe, why Opel couldn't be a Cadillac "outlet" that gives Cadillac the sales and service needed, while also allowing sales of other GM products such as the Commodore to be sold in Europe.
Opel isn't going to be VW, MB or BMW, but it can become the GM entry point to Europe.
That's the point. Opel makes enormous efforts for cars like the Astra Wagon or the Zafira but these cars cannot be sold worldwide. So although they are very successful, they do not make money. Opel needs access to all markets - why not rebadged as Buick or Holden?
I agree with both your points.

Buick could use Agila, and Corsa too, with Zafira here in its home market and it makes no sense for Opel and Buick to sell the same line up with different grills in China, so, a tie up would be in order. Holden can help them with RWD upper level products for both US, Europe, China and India.

The result would be a stronger global Holden and a stronger Opel and ultimately a stronger GM.
 
#12 ·
I still think Opel is too important for GM to abandon sell or close right now. If Opel were more profitable I suppose the whole question would be mute, just as if Pontiac or Saturn had been profitable they would still be with us today. This raises the question of why Opel is not or can not be profitable now and in the future. I do not understand why it isn’t. I think it can and I think GM should just make the tough decisions and make the necessary changes to turn it into consistent money maker. They did it in North America why can they not do it in Europe even if it means some production is shifted to less expensive countries or old and redundant factories are closed or consolidated. Everyone who works for Opel must begin to come to terms with the fact that either they do whatever it takes to get profitable again, because if GM sells Opel, the new owners whoever they are will without question make drastic cuts to bring costs down…the very same cuts GM needs to make now. Opel employees and management should also stop thinking of themselves as a separate company from GM, they are not. I do fault GM for not giving a clear path to wherever it is that they want to go with respect to Opel and its place within the greater GM.

If Gm wants to push Opel Up Market then GM should state that clearly and get on with the job of adjusting its model line up to reflect this. I think there is plenty of room in the European market for a 3 tier Chevrolet-Opel-Cadillac hierarchy. GM just has to make sure there is not too much overlap and that each division is clearly defined in the market place. In this newer Buick-like European roll Opel should concentrate on performance sedans both front and AWD with turbo 4 & 6 cylinder motors. They should cede all truck and vans like the Movano to Chevrolet as well as small cars like Corsa & Tigra to Chevrolet. In return Opel should get premium crossovers, perhaps based on the upcoming Buick Encore and maybe even an Opel version of Enclave. Opel should get a flagship sedan to slot above Insignia and call it Omega.. Like Buick in the US. Opel should take the point on the debut of E-Assist in Europe. Finally to the extent that it is possible I see no reason why more Opels and Chevrolets could not be built together in the same factories
 
#14 ·
The primary problem is GM's accounting rules, an Insignia sale in North America cannot be credited to Opel, because its in the wrong continent, neither can a volt sale sold in Europe be credited to Chevrolet North America.

Opels problems are tied to GM Europe itself, not Opel as a brand.
 
#16 · (Edited)
Cost of doing business in Europe. It's either that or EU import tariffs, which is the main reason the Japanese and Koreans have lower penetration than elsewhere.

The real issue is GM's poor management and lack of direction for Opel. With competitive product in the new Astra and Insignia Opel's shown even in a tough market it can make headway.

Saying Chevrolet, which is Hyundai-status can replace Opel and not lose massive Euro market share - 37% of German market alone - is just fanciful. And some Opels would retail for 60, 70% more than their Daewoo-built counterparts. Same with Vauxhall. It's got a solid positioning in the UK market - what it exists for.

They're strategic brands there for tactical reasons. To get rid of them is just to give an enormous free kick to the competition.
 
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