Nick Reilly, head of Opel, or rather General Motors Europe, which supposedly doesn’t exist anymore, wants to be Superman.
In an interview with the Financial Times, Reilly said that Opel should shoot for an operating profit margin of 4-5 percent within four years, if not earlier.
In the world according to Reilly, Opel will perform like this: Opel will face “another tough” year in 2010, when Europe goes on C4C withdrawal. Reilly sees Opel to break even by 2011 and make a “decent” profit from 2012.
Says Reilly: “If we are successful we should be at least 4-5 percent. Four to five per cent gives a good return on investment and capital … It shouldn’t take more than four years.”
Industry insiders think Reilly is hallucinating.
In the car business, 4-5 percent margin on revenue is considered a miracle. Arndt Ellinghorst, head of automotive research at Credit Suisse, said: “In the best case, when the product cycle is peaking and car demand is booming, a mass market carmaker can reach a profit margin of 4-5 per cent.”
To make matters worse, Reilly said that Opel’s focus should be saturated Europe. Later, maybe, he sees Opel to expand to South America, the Middle East or other parts of Asia. Without immediate access to the growth markets, Opel is doomed.
Reilly plans to present a €3.3b ($4.7b) restructuring plan by mid-January. If those targets are part of the plan, then all that’s left for Opel is to pray.
Well Saab is officially dead, so thats one European competitor less to worry about – Saabs were priced low in the UK, so they did sort of compete with top of the line Vauxhalls (English Opels).
Surprised TTAC haven’t caught up with this yet. All of GM’s supposed sales – apart from Hummer – have now fallen through.
Hummer isn’t sold yet. Tengzhong is waiting for government approval. The Chinese government is waiting for an application. Keystone Kops.
But the Hummer deal hasn’t fallen through… yet.
On the article, I don’t think this is a bad idea. I also think that 4-5% margin should be attainable in just about any market. What you report is probably lower to avoid some taxes. But, I think the direction to succeed is a good thing. He wants something that is hard to achieve.
No, what I am reporting is the EBITDA margin. 4% – 5% on revenue is huge.
I for one am sorry that it is true that Opel have pulled out from emerging markets. GM’s new product down here, the Chevy Agile (courtesy of Daewoo) not only looks horrible, but is also a truly “wondrous” piece of engineering. To wit, an air conditioning tube placed in the passeger seat footwell that was knocked out by about 4 in every 10 people to get into the car. Or the lack of heat protection for the exhaust that leads car journalists to warn people to not place anything sensitive to heat on the left side floor of the trunk. Or the huge front grille (oh my eyes!) that lacks any protection for the radiator in a country where the roads are littered w/ all kind of debris. Baby, baby!
To be fair, it had a very surprisingly strong 1st month of sales. However, it seems to have cannibalized own GM’s own line, as none of the direct competitors numbers were down. Oh well, as a new car it retails for a higher price than the cars it is cannibalizing so that’s the silver lining. But it did knock out of the top 5 one of GM’s own perennial best sellers (Corsa Classic).
Top Ten in November 2009:
1 VW Gol 23k
2 Fiat Palio 16.7k
3 Fiat Uno Mille 12.7k
4 Chevy Celta 10.5k
5 Fiat Siena 10k
6 VW Fox 9.4k
7 Fiat Strada 7.9k
8 VW Voyage 6.1k
9 Chevy Agile 5.93k
10 Chevy Corsa Classic 5.88k
About 4 years back of the big auto companies the best two globally were around 6%, that was BMW and maybe Honda. The worst three (no guesses) were around -2%.
Opel has the advantage, now that it is still owned by GM, that its return can be anything they want, since it depends on transfer pricing with GM_USA. If GM want Opel to make a profit, they’ll pay a big licensing fee for some patent. if they want Opel to make a loss, they’ll charge them a lot for back-office support. etc.