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New Opel May Bring GM Profit in Europe: Doron Levin (Correct)

(Corrects year Forster joined General Motors to 2001 in 15th paragraph. Commentary. Doron Levin is a Bloomberg News columnist. The opinions expressed are his own.)

By Doron Levin

March 8 (Bloomberg) -- The new Opel Astra family sedan brings with it the best hope General Motors Corp. has had in years to post even a slim profit in its money-losing European operations.

The Astra arrives in showrooms this month. So far GM has 30,000 firm retail orders, about half of which were spurred by a 50 percent discount GM offered on three option packages worth up to 1,000 euros ($1,219).

Eventually, the world's No. 1 automaker hopes to sell 500,000 Astras a year in Europe.

Last year in Europe, about 3.2 million Astra-size cars were sold by all manufacturers, or about 21.8 percent of 14.7 million cars sold overall. Sales of the old Astra model totaled 358,298, about 11.1 percent of the compact segment.

A favorite of families, the market segment is the biggest in Europe, led now by Volkswagen AG's Golf family sedan, a new version of which VW introduced last fall.

The new Golf, however, is falling short of VW's projections, prompting the automaker to offer free air conditioning as an incentive to buyers. Ford Motor Co. will introduce a new Focus sedan in this class later this year.

Opening the Door

GM thinks the Golf's hiccups might open the door to higher volume and stronger pricing for Astra. ``We're shooting for break- even this year,'' said Carl-Peter Forster, chief executive of GM Europe's Opel brand. GM's losses in Europe last year narrowed to $504 million, from a $1.01 billion loss in 2002 -- well short of the company's goal to break even in 2003.

Yet Astra, GM's top-selling model in Europe, could run into the same trouble as Golf if lack of confidence among middle-class European buyers is the real reason for Golf's slow start. It starts at a price of 15,200 euros ($18,900).

The Astra won praise for good looks at its debut in Frankfurt last fall and now is attracting respectful comments from influential auto reviewers for its technical prowess. The new model offers options such as electronic handling control, which allows the driver to select sporty steering and suspension, and adaptive lighting, which points headlamp beams in the direction the car is turning.

Europe's Economy

GM executives are trying not to get too giddy yet about a turnaround, since the economic recovery in Europe is showing signs of weakness. John Devine, GM's chief financial officer, last week called on the European Central Bank to stimulate the economy by cutting interest rates from the current 2 percent.

``I think there's still room to reduce rates,'' Devine told reporters at the Geneva auto show. ``There's no question we need a jump start in western Europe on economic growth.''

Rick Wagoner, GM's chairman and CEO, echoed Devine on Thursday: ``I continue to be concerned about the lack of enthusiasm for economic growth in Europe. We're not profitable, and we need some economic growth to fuel it.''

About the same size as a Honda Civic, the Astra is smaller and more fuel efficient than the typical family sedan sold in the U.S.; the size sells well because of the high cost of gasoline in Europe. The Astra is more technically sophisticated than its predecessor, reflecting the demands of German drivers in particular for more engineering precision than U.S. drivers expect.

Opel's Reputation

During a 200-mile drive on French highways and backroads the test car, powered by an energy-efficient 1.7-liter diesel -- one of several engine options -- hugged the pavement and ascended steep inclines with little effort. Once or twice motorcyclists, spotting the new design, gave us a thumbs-up.

Opel lost its reputation for quality and pleasing design during the 1990s. Forster has pushed Opel to regain its status since coming to GM from Bayerische Motoren Werke AG in 2001.

The new model is the first Opel developed entirely during Forster's tenure. Strong sales of Astra could bode well for the Opel brand overall, and help sales of the larger Vectra and smaller Corsa, as well as the Zafira minivan.

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