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Buick Borrows From Opel as GM CEO Seeks Global Savings

Buick Borrows From Opel as GM CEO Looks for Global Savings
Opel has reported more than 110,000 Mokka orders since October 2012 when it went on sale and General Motors Co. announced in July that it will begin production of the SUV in Spain beginning during the second half of 2014. Photographer: Chris Ratcliffe/Bloomberg

Aug. 20 (Bloomberg) -- Mustafa Yildirim from the Bavarian city of Fuerth overcame his concerns about bulky, gas-guzzling sport-utility vehicles after he came upon the Opel Mokka.

“It was love at first sight,” said Yildirim, a 45-year-old caterer. “The Mokka has a beautiful exterior design. It’s not as big as the BMW X5 or Audi Q5, and thus optimal for the city.”

The small SUV, sold in Europe as an Opel and in China and the U.S. as the Buick Encore, represents what General Motors Co. Chief Executive Officer Dan Akerson is pushing GM to do more of with the two brands. By working together, they can hold down costs and carve out a profitable niche between upscale Cadillac and mass-market Chevrolet, the company’s global brands.

GM Europe, consisting mostly of Opel and sister brand Vauxhall, has lost more than $18 billion in Europe since 1999 and continues to be a drag on the Detroit-based automaker’s bottom line. After the board chose not to sell Opel in 2009, Akerson, a Navy veteran, is positioning it and Buick as what he calls “flanker brands” serving regional tastes.

“This Buick-Opel guiding principle of similar if not identical vehicles is the right thing to do,” Jim Federico, a GM executive director in product development, said last month in an interview. “It makes it extremely clear for brand identity for Chevrolet and Cadillac and these can fit nicely in the middle.”

GM rose 0.9 percent to $34.79 at the close in New York. The shares have gained 21 percent this year, compared with a 16 percent increase for the Standard & Poor’s 500 Index.

Mid-Decade Goals

Opel and Buick can help Akerson reach several ambitious goals for mid-decade: stem losses in Europe, boost North American profit margins and increase China sales. GM’s European operations are being revamped, including cutting costs, closing an assembly plant and introducing new models, such as the Mokka.

GM has tried to leverage Opel and Buick before. The Buick Regal compact sedan, for example, is sold as the Opel Insignia in Europe, where it won Car of the Year in 2009.

The Mokka and Encore, which went on sale in January in the U.S., are almost 90 percent the same, sharing more components than the Regal and Insignia, said Federico, who has served as the executive chief engineer on GM’s small vehicles.

“What we’re trying to do is bring together the product development team much more closely,” Akerson said in June. “It’ll be all sorts of synergies, I believe, between Opel-Vauxhall and Buick,” giving GM more scale and cost savings.

Regulatory Puzzle

One obstacle is that vehicles that do well in one region don’t always pass regulatory muster in another. While Opel’s new Adam minicar and Cascada convertible, for example, are proving popular in Europe, they weren’t engineered in ways to meet U.S. safety requirements, Akerson said.

He called the challenge “probably the most complicated Rubik’s Cube, if you will, within the company right now.”

With 700,007 sales last year, China is Buick’s largest market with almost four times the 180,408 U.S. deliveries. GM sold 1.1 million Opels worldwide in 2012. The German brand expanded to Australia last September before again withdrawing.

Carefully crafting brands for different tastes and budgets harkens back to the early- to mid-20th century era of Alfred Sloan and his philosophy of “A Car for Every Purse and Purpose.” His strategy was lost in the 1980s as each brand began going after the same customer, said John Wolkonowicz, an independent consultant and historian.

Gamma Platform

“It seemed obvious to me for years that Opel could’ve been Buick in the U.S.,” Wolkonowicz said in an interview. “You have this whole wonderful line-up of European-engineered cars.”

Mokka and Encore are on the SUV version of the Gamma platform, which also includes small cars such as the Chevrolet Sonic. Projected volume for vehicles using the Gamma platform will approach 1 million by 2018, according to IHS Automotive.

GM sold 35,622 Encores through June, including 12,252 in the U.S., the company said. Opel has reported more than 110,000 Mokka orders since October 2012 when it went on sale and GM announced in July that it will begin production of the SUV in Spain beginning during the second half of 2014. At the same time, GM said it’s adding capacity at its Bupyeong, South Korea, assembly plant that makes Mokka and Encore SUVs. Encores are also made in China for sales there.

Winning Praise

While sales are just starting to take hold in the U.S., the Encore has been winning praise. It received an award as part of J.D. Power & Associates study of owner satisfaction with recently purchased models, beating out SUVs such as the Hyundai Tucson and Jeep Compass.

It’s also received accolades from car reviewers. The Wall Street Journal’s auto critic, Dan Neil, praised it, writing that the Encore “turns out to be pretty darn adorable, an elfish voyager on urban seas, small but smart.” Car and Driver in December said the Encore “offers exactly what the teeming masses need to enjoy their daily commutes and leisure trips.” Motor Trend wrote: “Buick may finally have the recipe to conquer the younger generation of luxury CUV buyers while snaring a fair amount of empty-nesters as well.”

In Germany, Yildirim, the Mokka buyer, was a satisfied customer.

“With another manufacturer, we might have had to pay thousands of euros more for the same features,” said Yildirim, who was also considering a used Audi A3. “Everything’s spot on with the Mokka -- price, quality, design and roominess.”

To contact the reporters on this story: Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net; Weixin Zha in Frankfurt at wzha2@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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