The Sexing-Up of Opel

GM's dowdy carmaker is doing some major image work

In Europe these days, the one thing General Motors Corp. (GM ) seems to be good at is losing money. Lots of money. GM lost $240 million in Europe the first half of the year, almost all of it coming from its Germany-based subsidiary Adam Opel. Prudential Securities Inc. forecasts GM will lose $600 million in Europe this year, after dropping $676 million last year. When it comes to a bland brand image and a reputation for sloppy quality, Opel is a frontrunner.

Time for a new image. And that's what Opel tried hard to project at the Frankurt Auto Show in mid-September. There it introduced concept vehicles and new models all built around an intriguing idea: to transform many of its standard European sedans and coupes into fun-driving utility vehicles. Basically, the new models are taller versions of small European cars, which give drivers the storage space and commanding ride height of a sport-utility vehicle--but without the bulky size of American SUVs. Opel also will add flexible seating and storage to its conventional models. Says GM Europe boss Michael J. Burns: "The idea is German engineering with versatility and flexibility."

For Opel, these are bold moves. The carmaker has been known over much of the last decade for its timidly designed, mainstream sedans and compacts--real follow-the-leader stuff. Now it wants to lead the market as Europe's drivers develop a new taste for sport-utility and related vehicles. Thus Opel's Signum sport wagon, shown at the Frankfurt Show, has rear seats that fold over, leaving a completely flat floor for gear and a pair of storage boxes. Opel plans to launch three more utility vehicles by 2005, based on platforms from its Vectra, Astra, and Corsa models, analysts say.

If Opel can beat its competitors to market with distinctive vehicles, the company can lure more buyers and fetch better prices. "Commanding a premium is a reward for building good product," says Opel Chief Executive Carl-Peter Forster. He should know: Before taking the helm at Opel on Apr. 1, Forster was a key player in developing the sharply styled, richly profitable 5 series for BMW.

Forster's team developed the sport-ute strategy after studying the details of Opel's one bona fide success of late. Drivers love the zippy Zafira compact minivan, whose $18,000 sticker price is 5% above competing models. The Zafira's seats can be reconfigured to hold more cargo or up to seven passengers. Such features have clicked with buyers, who see the Zafira as an affordable alternative to large sedans.

So Forster, a proven winner, thinks Opel has a winning strategy. Yet Opel still has to shake its reputation for poor quality. Meanwhile, competitors are moving in. Renault has launched an all-wheel-drive version of its Megane Scenic--a rival to the Zafira. Volkswagen (VLKAY ) will launch a small utility van off its Golf subcompact, while Ford (F ) will be selling a similarly designed vehicle built off the Focus compact. "I don't think anyone can own versatility," says Ford of Europe Chairman and CEO David W. Thursfield. "It's like trying to own four wheels."

It's also very hard, in the crowded European car market, to regain lost share. Opel's has fallen to 10.5% this year, from 12.7% in 1993. Nigel Griffiths, analyst with DRI-WEFA in London, forecasts that Opel's share will remain static at about 10.3% in the next two years. At the same time, the company isn't winning new buyers in the profitable large-sedan segments. And it is nowhere in the luxury market. Its sales growth has come from the Zafira and the Polish-made Agila subcompact, which sells for about $8,500. Even Opel execs expect a tough turnaround. Rebuilding the brand "takes seven years," concedes Alain Uyttenhoven, Opel's director of brand management. "You still have models in the pipeline that don't fit the strategy."

That's why Opel continues to pursue the dreary business of shrinking the company. GM aims to cut European capacity by 480,000 vehicles and is negotiating with unions for even more cuts. Meanwhile, GM and Fiat--of which GM owns 20%--will merge their engine development efforts. That will reduce costs by $900 million for each auto maker by 2007. Says GM CEO G. Richard Wagoner Jr.: "It's hard to imagine that you can [ever] cut costs too much." Trouble is, drivers don't buy costs. They buy cars. Opel badly needs the right strategy to sell them.

By David Welch in Frankfurt

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