When GM will announce 4th quarter and year-end earnings tomorrow, a lot of fingers will be pointed at Opel, and on GM CEO Dan Akerson who decided to keep the hemorrhaging unit instead of selling it off to Magna and the Russians. Bloomberg expects that tomorrow’s quarterly profit will be “GM’s lowest since it emerged from bankruptcy in 2009,” despite record sales in the U.S. and China. According to Bloomberg,
“The darkest cloud on GM’s horizon is Opel, the biggest contributor to GM’s $14.7 billion in European operating losses since 1999.”
Adam Jonas, an analyst at Morgan Stanley Jonas, estimates the value of GM’s European operations at a negative $8 billion. The automaker’s China business would be worth $10 billion, he said.
“The negative value of GM Europe is almost as big as the positive value of GM China,” Jonas said.
GM shareholders will demand action to cut German losses, but unions in Germany point to the contracts with GM that rule out further plant closures and layoffs.
I don’t see how Germany can sustain a low margin auto maker like Opel. I realise government money and a depressed exchange rate help but surely the cost of business in a highly regulated economy with high labour costs more than offsets this.
Opel is making a profit but they do accounting magic. What they sell in Chin is mostly Opels. Count the profit from China with that of Europe and Opel makes a profit
GM is getting the A team engaged to fix Opel with recent board changes. Akerson is reportedly impatient to staunch the bleeding of Opel, which is really the GM Europe Region. Bear in mind, the EU is suffering tough economic times right now, surpressing volumes and financially stressing most carmakers operating in the region. Europe is an important part of GM’s globally integrated vehicle development system, and vehicle development activity is the strategic asset to maintain, while the union contracts are blocking GM’s business desire to reduce labor costs in the region in line with competitive, and more importantly volume decline pressures. Here in the U.S., union power saddled GM with similar issues leading to the JOBS bank, maintaining nearly $1 billion a year in labor costs for folks there was not longer any work for.
Volkswagen manages to do it. But they make cars with a better reputation than Opel does, so their margins may well be hire.
No, this is something GM should have dealt with long ago, just like their labor situation in the US. The US labor situation was dealt with for them by the US govt, but who at GM is going to be able to take on the Germans and rationalize the company’s cost structure.
Not selling Opel looks like a huge error. I’m not sure why they’ve also gone on this big push with Chevrolet in Europe as well. If they wanted to sell Korean cars there, why not use Opel? Heck, why not rationalize and do a One-Ford thing with Opel and Chevrolet- try to share as much between US Chevrolet and rest of the world Opel as makes sense?
Ugh. Higher. Margins may well be higher.
They are doing some “one Ford’ type activities with the Insignia coming over as the Regal. The Astra underpins the Verano. They could do much more to copy Ford. Alternatively they could do the Toyota and Honda approach of having mainly different vehicles in the US compared to Europe (Corolla vs Auris, Camry vs Avensis etc).
Opel needs to be restructured but they are not the only European auto company losing money – PSA, Ford and others do. I wonder what profit Toyota and Honda make in Europe based upon a low market share.
If you don’t account for the cost developing a car but only account for homogenizing it for the European market than it is much faster profitable to sell a car. This is the way Honda and Toyota should account for their designed for the Japanese market cars in Europe so Toyota and Honda are most like profitable in Europe
I don’t remember which magazine, either Motor Trend or Automobile talked to a higher up in Ford in one of the Fusion reveal articles, and he is quoted as saying they wanted North America to design the car because they don’t want to have these zones of specialization where North America does trucks, Europe does cars etc….
Cause American cars have a very bad rap in Europe and Daewoo isn’t known for making good cars. Besides One-Ford is One-European-Ford with respect to cars. You can’t do a One-GM without the One-European-GM aka Opel
Detroit designed the Mondeo/Fusion.
“If they wanted to sell Korean cars there, why not use Opel?”
My guess is that German law and the union would make it difficult for the Opel entity to shift large volumes of Opel production abroad. But there isn’t much of anything that either the law or the union could do to keep a different entity called Chevrolet from selling Korean imports.
Dr Nick – are you sure. Because the new Fusion from the sides and back look very similar to the current Mondeo (look at http://www.ford.co.uk). The front is a departure. The Mondeo was a big car for Europe so it size wise works in the US.
@Mike978 — designing != styling, in this case.
But, *gasp*, you all just don’t understand! GM management has a plan! Somewhere deep in the RenCen, there is a PowerPoint presentation, where it all just makes sense. Really. It will turn around someday, and after 20 or 30 years of profit, they will recover from that $15B lost since 1999. Just trust them (them = the management that they pay the high price for to attract the best talent).
Deja Vu all over again!
I might not (i.e., likely do not) fully understand the situation, but it seems like a number of new GM vehicles here are developed on Opel platforms. Is Opel doing the development for the actual platform? If so, that means they are getting stuck with the development costs which will artificially drive their operating costs up. It seems like GM did something similar with Saab (not defending Saab- they were dead before GM bought them, no one could see it yet).
With Opel looking like the “House of Midsize” (car and CUV), and GM-Holden-Daewoo the “House of Small”, I agree that the corporate cost allocation misses the point: Opel as design house vs. Opel as production arm are two different things, and Opel as design house appears to be essential for GM global.
@MrGreenMan- well put.
How long has Opel been a boat anchor on GM’s earnings? Is this another example of Wall Street’s short term thinking? If so, then clearly Wall Street has not learned anything since 2008: Japan Inc did not get to where it is by short term thinking. Even 8 or 12 quarters is short term in the car business.
Forget about who is #1 in world sales. GM simply cannot be a world player without a strong presence in the European market. Opel gives them the ‘inside’ edge that Toyota and Honda will never enjoy.
GM needs to think about that as Canadians debate about what is more ‘Canadian:’ a Honda made in Alliston or a Cruze made in Michigan.
When you are hemorrhaging money you have to stop the bleeding. GM was not bailed out by the US government so that GM Europe could lose billions of dollars a year.
Analogy: If you are behind on the mortgage for your primary residence you don’t worry about remodeling your vacation home.
GM can barely manage its US operations, and those are not out of the woods yet. Sell Opel off to the highest bidder and let them fix it.
Apparently they’re working on over a decade now, and it’s getting worse.
“GM vice chairman Steve Girsky told Germany’s Financial Times Deutschland the company should look to the Volkswagen Group as an example of how to succeed with multiple brands in the region.
GM currently manages four brands in Europe – Cadillac, Chevrolet, Opel and Vauxhall – and Girsky says there needs to be greater inter-company technology sharing for them to be successful individually and as a group. “Other companies sell more than one brand in Europe. If we could achieve this as well as they [Volkswagen] do, then we could also prosper,” he said.
Girsky is the man charged with the unenviable task of turning around GM’s fortunes in Europe. GM hasn’t recorded a profit in Europe in more than 10 years and lost US$1.6 billion ($1.56 billion) last year alone. Despite being the world’s largest vehicle manufacturer in 2011, GM will make another loss in Europe this year.”
http://www.caradvice.com.au/150108/we-need-to-be-more-like-volkswagen-gm-europe/
Vauxhall isn`t really a different brand. It is just Opel in the UK with a different badge – same cars, same names. If Chevy takes Skoda’s position, Opel/Vauxhall is VW and Cadillac is Audi then it could work.
I guess carbiz is right. Any action on Opel by GM cannot be driven by short term thinking. Opel is the enginnering house for midsize cars of GM and besides that, the brand is essential to keep a decent market presence in Europe. Chevrolet has less than 2% share and it will not be able -at least in 8 to 10 years – to make up the loss resulting from an Opel exit. The need of restructuring Opel is however unavoidable, as it still keeps a strong manufacturing footprint in Germany and has excess capacity overall in Europe, but TTAC readers in USA should not think of Opel as a German manufacturer only, as Opel/Vauxall cars are also produced out of Germany, namely in UK and Spain.
they pulled the same stunts dismantling US wages and benefits. I don’t believe them, don’t trust them, and neither do the German unions.
An interesting point: GM losses in Europe are exclusively associated to Opel and Vauxhall brands. What about the others,i.e., Chevrolet, which already sold 500,000 units in Europe last year? I guess these results are disguised in GM Korea numbers and therefore consolidated with the Asian operations – profitable because of China – but I am afraid that Chevrolet is losing money in Europe as well…
they brought in Girsky the bankruptcy bankster and Docherty the Grim Reaper of sales. what does that tell you?
GM management will lie, cheat, steal, rape and pillage. they strip innocent retirees, screw workers, leave communities to die but make sure they receive their fat bonuses. buy a Ford.
@Buickman- You should quit blaming GM management for Obama admin directed bankruptcy details. A third of all execs, and most of the top leaders were pushed out the door in 2009, and all the retired exec’s lost far more than salaried and UAW folks (who seemed to have lost little or nothing). Most Exec compensation was in shares or options of old GM stock that went to zero.
I don’t. I blame them for their own incompetencies.
The execs lost far more than salaried? How about a 68 year old man who has to support a family that suddenly has his main source of income cut in addition to his health benefits that pay for cancer treatments while those execs rest on the laurels of their previous bonuses and other outrageous perks. Don’t for a second think that the execs were hit harder than salaried workers.
Buickman – do you still sell Buicks or other GM vehicles?
anything that’s not moving and some things that are…
I don’t mean to put a spin on things. The situation is drastic at Opel, however from the Bloomberg article it looks like Opel has cut losses by more than half since 2010. Losses for the first 9 months of 2011 are 582 million compared to 1192 Million for the first nine months of 2010. Full year losses for 2011 are estimated at 900 Million compared to 1.76 Billion in 2011. I would call this a commendable turnaround considering the EU economy is still in the toilet. There is still a lot of work to be done but it seems GM is on the right track. Global profits are expected to nearly double to 8 Billion in 2011 from 4.7 Billion in 2010. Once the EU economy improves and if by then GM restructures Opel’s costs, we can expect Opel to be profitable consistently.
Opel’s small car engineering is very valuable to GM especially in very important emerging markets. Opel may already be profitable If GM attributes profits earned on Opel based products from other markets. For example the Astra based Buick Excelle is the number 1 selling car in China. The Opel Antara based Captiva is the number 1 selling car in South East Asia. The Cruze, built on Opel developed Delta II Platform is the number 1 car for GM globally. GM’s global profits @ 8 Billion a year can easily absorb Opel’s losses while using their engineering, similar to what Toyota has been doing. Toyota losses 4 or 5 times as much in Japan every year, They still have a major presence in Japan to utilize the engineering and technology expertise those workers provide. Opel’s $1B loss in Europe is peanuts compared to Toyota’s $5 B a year loss in Japan.
I’m hoping GM doesn’t put Opel for sale. It is too valuable from an engineering and market share standpoint.
@Alluster, GM will fix Opel, and GM made $8B AFTER absorbing the Opel loss. GME was on track to make a small profit until the Euro economy tanked.
well written and informative. from such perspective radical surgery on the continent would not be wise.
cost base.
Opel’s cost base is in Belgium and Germany. VW has managed to move a lot of production to Slovakia, Hungary, Portugal and Russia where wages are far lower.
The Touraeg/Q7, Audi TT, Eos, Scirocco, Sharan, Polo, and Tiguan are examples of this.
No Opel manufacturing exists in Belgium. The plant in Antwerp was closed in 2010. Major car plants are in Germany (3), Spain (1) and UK (1)