By on February 18, 2012

Opel Chief Karl-Friedrich Stracke told reporters that an agreement with unions about a fix of money-losing Opel is a while away. “I expect this not to happen in a month or so, rather than in a couple of months, that’s at least how I see the timetable,” Stracke told Reuters.

Analysts think that Stracke is an optimist, and that restructuring Opel won’t come cheap. The guesstimate is more than $1 billion, and the payback will take a while.

“The cost is likely to be steep and the savings not immediate,” Joseph Spak, an analyst at RBC Capital Markets in New York, wrote as lead author in a note to investors today. RBC estimates European restructuring expenses of $600 million this year and $400 million in 2013.

GM’s European business lost $747 million last year after losing $1.95 billion in 2010. According to Bloomberg, the analyst consensus is that this year, there will be a $1.2 billion deficit.

Cutting 4,000 jobs in Europe will cost GM anywhere between $1 billion and $1.2 billion, or $300,000 per job, the analysts estimate. It could cost more. The unions have contracts that rule out plant closing or firings until 2014. European Unions will demand their share of the $9.19 billion GM had as a profit in 2011.

 

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30 Comments on “Fixing Opel Will Cost More Than A Billion And More Than A Couple Of Months...”


  • avatar
    mike978

    There may be other costs but the payback seems reasonably quick. Even if you assume it is $2 billion to restructure. That is less than than the losses in 2010 and 2011. That seem pretty quick. Even if you take 2011 to be more representative (i.e. <$1 billion) that is still a 2 year payback. Money well spent if it is the only option.

  • avatar
    Pch101

    It would probably be cheaper for GM to build Chevrolet as an import brand that competes against Opel, and eventually put Opel into liquidation, than it would be to restructure Opel from within. My guess is that someone in Detroit has figured this out, and may be planning to do just that.

    • 0 avatar
      charly

      It will take Hyundai 10 years to get the contacts with the lease companies that Opel has. And Daewoo, i mean Chevrolet is no Hyundai.

    • 0 avatar
      doctor olds

      GM will fix Opel/Vauxhall and use them mid to entry lux brands, similar to Buick here. Chevrolet will be on the low end and Cadillac on the high end.
      Opel would likely have been in the black, if not for the economic turmoil surpressing the Euro market last year.

  • avatar

    if we weren’t talking about downsizing, cutting and closing it wouldn’t be General Motors. they want out of unionized labor but doing it in Europe will prove far more expensive than the US where labor leaders are more easily hip pocketed. still, the accounting charades and sales shenanigans will eventually prevail and the jobs transplanted. that’s the GM way.

  • avatar
    alluster

    “Cutting 4,000 jobs in Europe will cost GM anywhere between $1 billion and $1.2 billion, or $300,000 per job,”

    wow. so why cut a job when you can keep the person employed for 5 years with the same money. What if the economy improves in the next five years and GM has to hire additional workers to keep up with increased demand? Also, is $1 B /yr in losses a steep price to pay for the small car technology and expertise Opel provides, which GM can leverage across the globe. The situation in Europe is exactly the same as in the US in 2009. Use the losses as an excuse and file for bankruptcy restructuring, though I understand it is not as simple as in the US. They should have sold or killed Opel in 2009 when they had a chance and by now Chevrolet would have easily recaptured most of Opel’s market share.

    The fact that GM is serious about getting Opel profitable despite record profits and the fact they are unwilling to wait till the contracts expire in 2014 or patient enough to wait till the EU economy improves is a good sign that the new GM is not Old GM.

    • 0 avatar
      tonymos

      “Chevrolet would have easily recaptured most of Opel’s market share”

      No, it would not have. American cars do not have a positive image in Western Europe. They are either seen as big, powerful and over-the-top accessories for people with a less than stellar reputation and a wallet bigger than their sense in good taste, which still stems from the 70s or the image of inefficient faux-luxury. And this is the view on American luxury makes. An American bread-and-butter car does not fare any better. Selling some conversions for some years from the one Korean that never left the bottom of the market didn’t help either. In other words, no one in his right mind would want to be caught dead in a Chevrolet. Sorry, for being so snobbish, but this is what most of the German/French/BeNeLux-middleclasses think…

      • 0 avatar
        charly

        A synonym for American iron is pimp mobile in some regions of Europe and not because they are blinged out.

      • 0 avatar
        Vega

        Couldn’t have put it better myself. Here in Germany, there are two archetypes of Chevy customers: Pimps driving Corvettes and East German pensioners driving ex-Daewoo Korean crapmobiles. Opel has lost a lot of cachet since the 1950s (especially in the 80s and 90s) and is in no way seen as an aspirational brand, but it is still miles above Chevrolet.

    • 0 avatar
      charly

      Filing for bankruptcy means not only loosing control over the factories but also over the development centers. Together they would kill GM in South America and China

    • 0 avatar
      Dr.Nick

      You downsize because never in your right mind would you ever hire another German autoworker if you ever had the chance to not do so. This fiasco is example #1 of why not. Opel should have tried to get into an Eastern European labor situation when the getting was good.

      • 0 avatar
        Vega

        Strange. The unionized workers in Stuttgart-Untertürkheim, Zuffenhausen, Ingolstadt, Munich, Dingolfing, Leipzig, Wolfsburg etc. don’t seem to be hurting the success of Audi, Porsche, BMW, Mercedes and VW.
        Destroy a brand with mediocre product for decades, see brand value disappear, blame the resulting losses on the workers. Nice.

      • 0 avatar
        Steven02

        Vega,
        I agree a lot of this has to do with the product that was being produced. Now, they have too many workers for the amount of cars they are building. The math isn’t that hard. It wasn’t the workers fault, but should Opel just be content with losing money because of staffing issues that are now occurring?

    • 0 avatar
      Patrickj

      @alluster
      New Opels seemed to disappear from the roads of Ireland during the 2000s. At first, during my 2010 visit, it made me wonder whether Opel had abandoned the market.

      I saw more new Vauxhalls with UK plates than new Opels with Irish ones.

  • avatar

    Opel/Vauxhall are crippled companies by design (by GM) due to their limited export chances. This is neither new nor will it change.
    Perhaps it makes more sense to drop both and offer a new product mix (w/without rebadged Opel cars) under the GM label.

    • 0 avatar
      mike978

      Limited export chances – true but then so is Skoda and SEAT which are regional parts of the VW empire. Being regional is not unique to Opel/Vauxhall or necessarily a hardship since the EU market is one of the three biggest. It isn`t like Holden (very small market) or Mercury until it died.

  • avatar
    Trend-Shifter

    Europe is a big market and GM should continue to have a presence there. If they shut down Opel totally they will regret this during the next European upswing in their economy.

    However, GM needs a European business model on a smaller scale. This while working to have less models that have higher production volumes. Basically try to replicate what happened in North America.

    The first thing I would do is combine the dealerships of Chevrolet and Opel. The Opel name should not go away because I am sure there are still the Opel faithful out there that you do not want to lose.

    Badge engineering works if you wanted to meld Opel and Chevrolet together in the customer’s eyes. Opel production can then make either brand.

    If the cars can truly become “global”, then you have the flexibility to change the percentage of manufacturing based on location to adjust for currency fluctuations.

  • avatar
    Robert Schwartz

    “European Unions will demand their share of the $9.19 billion GM had as a profit in 2011.”

    Why are they entitled to a portion of a profit they had no role in generating?

  • avatar
    Tstag

    I feel for the Vauxhall part of Opel. The workers are efficient and Vauxhall sell more cars in one Market than Opel can in any Market but because uk labour laws are flexible guess which factories will shut first

    • 0 avatar
      Vega

      OK. There’s so much wrong with that I don’t even know where to begin.

      • 0 avatar
        mike978

        It is true that UK labor laws are more liberal than those in other European countries. As such it is easier to fire UK workers (with a lot less than $300K per person). Conversely it is easier to setup and hire workers in the UK hence why other companies have set up in the UK (Nissan, Toyota, Honda and BMW).

  • avatar
    getacargetacheck

    Perhaps the solution is to give away a factory or two to BMW or some other manufacturer (not necessarily autos) who needs European capacity just as Fiat has done recently? Also, why not take Opel public (like Audi) and separate it from GM’s financials (for better or for worse)?

  • avatar
    boltar

    Opel was always te ny GM property that knew how t design and build great cars routinely. Amazing that GM have been completely unable to derive value from it. Or maybe not so amazing.

    Seems likely to me that GM without Opel going forward will be seriously handicapped as a global player.

  • avatar
    GS650G

    Opel should simply announce plans to build a 120K electric car in some forgotten GM plant and wait for The Big O to provide 500 million in loan promises then turn around and pump the money into plants in Europe.

    Worked for Fiskar.

  • avatar
    albert

    Vega is right, you can’t get an Opel customer into a Daewoo-Chevrolet. Other customer group.
    It’s GM itself that destroyed the image of Opel. Up until the eighties, Opel stood for above average quality. Opel, the dependable.
    But with the FWD cars came also the troubles. Squeezing out the profit of your suppliers will result in bad quality and that’s what happened. Resulting in diminishing market share. In Germany from once 17% to about 8%. In the Netherlands Opel was the number one seller for 36 years and now it is struggling for 5th place.

    But now for something completely different: we all talk about big losses at Opel. But how do we know that? How do we know that GM did not move losses to Opel and took profits in their own balance?
    Those tricks have been done before and are rather common in worldwide companies.
    One example: you let Buick buy the Regal for a lot less than it costs to produce. Result: Opel looses money and Buick has a big profit.


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