Has GM Pulled Opel Out of Its Skid?
General Motors Corp. (GM ) executives think they are finally getting some traction in Europe. To reverse nearly $2 billion in accumulated losses over the past three years, GM has axed 15,000 jobs and slashed one-third of production at its Adam Opel subsidiary in Germany. The next phase, an all-out product blitz, began this year with the launch of the stylish Vectra midsize car and soon the beefed-up Saab 9-3 sport sedan. Next year, the U.S. auto maker redoubles its assault with the upscale Opel Signum sport wagon and the Meriva, GM's entry in the fast-growing subcompact minivan market. Says GM Europe President Michael J. Burns: "We may be on the top of the heap in terms of new product [launches]."
Is this the end of Opel's woes? Not quite. The Russelheim-based auto maker is hitting the accelerator in Europe just as the German economy has hit the skids. Car sales are down 3% in Germany and 4% in Europe. What's more, the new models won't add much to the bottom line until late next year, when they reach full production. The company's travails could be compounded if Italy's Fiat Auto, which is 20%-owned by GM, exercises an option to stick GM with the rest of the company in early 2004, at a cost of roughly $2 billion. GM's stumbles in Europe--the world's largest car market--continue to hamper the corporation's resurgence. The auto maker is expected to make $3.4 billion in profit as U.S. truck sales soar, but that figure would approach $4 billion if it could just break even in Europe. "There is still a lot of work ahead of us," says Opel Chairman Carl-Peter Forster.
Early signs aren't good. GM's market share in Europe has fallen half a point, to 8.6% this year. Executives admit their goal of slashing last year's $765 million loss in half is out of reach. Sanford C. Bernstein & Co. analyst Scott Hill estimates GM Europe will lose another $450 million this year on sales of $22.4 billion. Forster, 48, says GM will ride out of the red in 2004: Some think it could take longer.
A recovery may never materialize if GM is forced to acquire the rest of Fiat. The Turin auto maker is a wreck: Fiat sales, including its Alfa Romeo and Lancia brands, are down 20% this year, setting the stage for another $1 billion annual loss. Fiat's worsening problems have GM execs pondering what they will do if Fiat exercises its put.
Forster admits that some of his restructuring moves won't show results for several years. Take the dealer network. Opel has suspended the contracts of all of its German dealers and next spring will renew only those it wants to keep. The number of outlets will then drop to about 1,800 from 2,300. Forster claims that move will curb competition and improve profitability. "We won't have an effective dealer organization until 2004," says the former BMW executive, who was brought in to fix Opel in April, 2001.
In the meantime, Forster is leaning hard on his engineers to get products to market fast. Opel accelerated development of its new Astra compact--a key car in its European lineup--by 12 months, for a late 2004 or early 2005 launch. But Forster says: "We still have a lot of inefficiency in our system."
Improving Opel's brand image is another challenge. True, it has managed to pull even with key rivals Ford Motor, Peugeot, and Renault in reliability surveys, thanks to its disciplined engineering and design. But the old taint lingers. When it comes to quality, "perception can lag reality by 5 or 10 years," says David Sargent, director of European operations for J.D. Power & Associates.
New models, such as the $24,000 Vectra and its sibling, the Signum due out next year, have garnered early praise. But the real test will be in showrooms in Munich, Marseille, and Manchester. Says Forster: "If we come up with great products and the quality and image is right, we will gain market share." Of course. But getting it all right has not been Opel's trademark.
By David Welch in Paris