Opel continues to struggle for a turnaround.
General Motors plans to pump €4 billion into its struggling Opel subsidiary over the next three years in a bid to finally reverse 13 years of losses that have led some skeptics to call on the American maker to sell or shutter the German-based operation.
The move, worth $5.2 billion, approved by the GM board on Wednesday, is meant to show that Opel has the maker’s “full support,” declared Chairman and CEO Dan Akerson, who emphasized his belief that “Opel is a key to our success.”
Following a meeting of the GM board at Opel headquarters in Russelsheim, Akerson declined to provide details of what the money will be used for, though the German subsidiary has been racing to streamline its bloated operations even while adding an array of new products such as the Opel Adam and Mokka models that have been among its few recent successes.
New GM Europe chief Karl-Thomas Neumann.
There has been speculation that General Motors might try to take the troubled European subsidiary’s assets off its books through an alliance it has formed with the also-struggling French carmaker PSA Peugeot Citroen. But GM Vice Chairman Steve Girsky says that is not in the plans.
Girsky, a former Wall Street automotive analyst, has been spearheading the Opel turnaround effort, taking control after a major management shake-up last year. He formally handed the reins over to Karl-Thomas Neumann, the new CEO of GM Europe, in March, but will continue to be a major factor in a turnaround effort that includes sharp production cuts in Germany.
During a news conference at the Geneva Motor Show last month, Neumann, a former Volkswagen AG senior executive, provided a brief outline of Opel’s 10-Year action plan, formally known as “Drive!2022,” which balances capacity and cost-cuts with new products. Among the models introduced during the Swiss show was the Opel Cascada convertible.
Opel has run up a total of $18 billion in losses since plunging into the red in 1999. That is substantially less than the deficit GM ran up in its home North American market prior to its 2009 bankruptcy – but where the U.S. maker is now turning billions in profits in North America and many other key regions, Opel and Europe have defied repeated targets for a turnaround.
Neumann at the debut of the Opel Cascada.
Losses widened from $700 million in 2011 to $1.8 billion in 2012. It doesn’t help that the overall market fell to a decades-low level in 2012, with most analysts and industry insiders anticipating further slippage this year – with even the most optimistic forecast from GM pointing to the possibility of getting back to a breakeven point.
Opel isn’t alone. With European sales down 10% for the first quarter alone, even the most profitable makers, such as Volkswagen and Daimler AG are lowering forecasts. And weaker competitors, from Ford to Fiat to Peugeot, expect to run up serious losses on the Continent.
Shortly after emerging from Chapter 11 protection in 2009, GM CEO Akerson’s predecessor Fritz Henderon led a push to sell off a majority stake in Opel. That move was scuttled at the last minute but has been second-guessed ever since. Several analysts, notably including Morgan Stanley’s Adam Jonas, have again pressed GM to find a way to get Opel off its books.
But following the Russelsheim board meeting today, Akerson insisted, “As a global automotive company, GM needs a strong presence in Europe – both in design and development as in manufacturing and sales.”