Reilly Predicts $2 Billion Loss For Opel

Bertel Schmitt
by Bertel Schmitt

Did you buy the GM share? If the answer is in the affirmative, then you should stop reading immediately. There are great new stories my Murilee Martin, just as a for instance.

Are we entre nous? Ok, here are the bad news: GM’s black hole in Germany, called Opel, turns out to be more humungous and more financial-matter sucking than ever imagined.

A few days after the GM share was placed (“7 times oversubscribed!”) Opel’s chief Nick Reilly told the ugly truth to Germany’s Wirtschaftswoche: Opel will rack up a loss of $2b this year. In the first three quarters (leading up to the IPO), Opel was $1.2b in the reds. In the last quarter, $800m of red ink will flow. And the worst is yet to come.

The restructuring is “dragging on” says Reilly. Opel wants to get rid of 8,000 jobs, 4,000 of those in Germany. This is expensive. To get rid of 2,600 workers in Antwerp, GM had to cough up $532m – a little bit over $200,000 per worker. In Bochum, 1800 jobs will be eliminated. Workers are holding out and refuse the offered six figure golden parachutes in wholesale fashion. They want more. Just getting rid of all these workers all over Europe can cost a few billions. Reilly knows that.

“Next year, we might have a problem if there is no change in the acceptance of our offers,” said Reilly. It doesn’t look like it. Reilly also admits that he has problems selling Opels in Germany. “That’s a special case, caused by the long debates about government aid.”

“Profits would be the best advertising,” says Reilly. That campaign is far away. Next year, Reilly wants to break even “before restructuring costs.” The costs will be in the books. In big fat red numbers.

Before someone says “rounding error” again when talking about Opel numbers, bone up on your math skills: $2b in losses for 2010 are the same as the $2b in Q3 total worldwide profits GM had touted before the IPO. Rarely a rounding error. Also, those happy days won’t be here again soon. When GM’s stellar profits were announced two weeks ago, GM CFO Chris Liddel warned that Q4 earnings would take a hit.

That was drowned out by the pre-IPO drumbeat. As reasons for a less than stellar fourth quarter, Liddel cited “a different production mix, the cost of launching new vehicles such as the Chevrolet Cruze, and the electric Volt, and higher engineering expenses for future products.”

Another possible reason for a disappointing Q4 makes the rounds in the business: In October, GM dumped a lot of high margin cars on dealer lots, and booked them as sales. Rumor has it that the unexpected “demand for high-margin pick-up trucks and crossover vehicles“ wasn’t entirely customer driven. But it surely goosed the numbers.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Tparkit Tparkit on Nov 22, 2010

    "GM’s black hole in Germany, called Opel, turns out to be more humungous and more financial-matter sucking than ever imagined." The size and future longevity of this black hole was very well-imagined by the prospective "buyers" who refused to participate unless they were made whole by long-term US federal government guarantees and subsidies. No river of US taxpayer cash, no deal.

  • Mike978 Mike978 on Nov 22, 2010

    Wow - MikeAR you need to calm down. I will comment this time and then get back to cars, after all that is what this site is for. Bush had good points and bad points (you're the one with the anger against Obama). To say he is more intelligent than Obama is a stretch even for you. I suppose going to Harvard and Columbia and then teaching at Chicago in Constitutional Law is for dummies. With that I will get abck to cars - infintely more interesting. BTW enjoy redstate.

  • Dartdude The bottom line is that in the new America coming the elites don't want you and me to own cars. They are going to make building cars so expensive that the will only be for the very rich and connected. You will eat bugs and ride the bus and live in a 500sq-ft. apartment and like it. HUD wants to quit giving federal for any development for single family homes and don't be surprised that FHA aren't going to give loans for single family homes in the very near future.
  • Ravenuer The rear view of the Eldo coupe makes it look fat!
  • FreedMike This is before Cadillac styling went full scale nutty...and not particularly attractive, in my opinion.
  • JTiberius1701 Middle of April here in NE Ohio. And that can still be shaky. Also on my Fiesta ST, I use Michelin Pilot Sport A/S tires for the winter and Bridgestone Potenza for my summer tires. No issues at all.
  • TCowner We've had a 64.5 Mustang in the family for the past 40 years. It is all original, Rangoon Red coupe with 289 (one of the first instead of the 260), Rally Pac, 4-speed, factory air, every option. Always gets smiles and thumbs ups.
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