By on November 23, 2011

Reuters reporter Ben Klayman, part of their stellar Detroit team, assisted by Christiaan Hetzner in Frankfurt, did a great piece about the grim options that await Steve Girsky and his merry band of hatchet men when they go over to Europe to whip Opel in shape. It could actually be the end of Opel instead of a glorious future, the report says.

“Options for restructuring Opel range from bad to worse and could include a form of bankruptcy, analysts and bankers say. Costs will have to be slashed further, steps that could include politically charged job cuts and plant closures in Europe. Girsky, who was named chairman of Opel’s supervisory board on Monday, could look for new partners for Opel to share costs, and even return to the idea of selling the brand once it has been repaired, analysts said.”

Adam Jonas, analyst at Morgan Stanley, Girsky’s former employer, says it best:

“You can’t say the words ‘all options are on the table, we rule out nothing’ unless there’s something fundamentally changing.”

Girsky had voted to keep Opel instead of selling it off to Magna. GM CEO Da Akerson had been one of the two board members who had voted to get rid of Opel in 2009.

Akerson called Europe’s economy a “morass” and said Opel needed to lower its break-even point. Easier said than done. German carmakers generally do well, but only on the back of strong exports powered by a soft Euro. In that department, the morass actually plays into their hands. Opel is for all intents and purposes locked out of Asia and can’t leverage that situation.

All of Girsky’s options are depression-inducing. He can reopen Opel’s labor contracts with the IG Metall union that represents factory workers, good luck on that. He can try  closing a plant to further lower costs. Good luck on that, the contracts forbid that. Says Reuters:

“Officials at IG Metall, which represents Opel’s plant workers, insist that no job cuts or plant closures are possible until the current labor deal expires at the end of 2014.”

Another option is a “contained bankruptcy.” In an SEC filing, GM had warned that a failed restructuring of Opel could prompt a local bankruptcy. That may scare the unions, or it may not. They still seem to be flirting with the idea of another owner.  Any restructuring without bankruptcy will be very expensive, GM is just finding this out.

Selling even a whitewashed Opel will be tough. “It’s very difficult to sell assets in Europe currently, but Opel is even more difficult. You can’t sell a restructuring case,” Reuters quotes an auto banker.

Magna isn’t interested anymore. Fiat isn’t interested.  The German carmakers would rather see Opel die.

Of course, the China card comes up again. The unions would rather see Opel be owned by SAIC than by GM.  Of course, there is that nasty intellectual property, but SAIC already makes a lot of its cars with Opel technology. They would not see much information they haven’t seen already.

There won’t be much help from the German government. They still haven’t gotten over GM reneging on the 2009 deal. The German government know that thee is too much capacity, and it would rather burden GM with unpopular decisions than one of its own.

Any which way, it will be tough. Said another banker to Reuters:

“What you’re seeing here is a prelude to a massive restructuring, and I don’t think it will be limited to GM. Europe has soft-shoed this for a long time. It’s awfully close to a total meltdown.”

A familiar face will be missing in the drama that will surely evolve: Outspoken union-boss and supervisory board vice chairman Klaus Franz. According to Automobilwoche [sub], Franz will retire by year’s end. He had sought cover after generous payments to Opel works council members were uncovered. It’s a tough world out there.

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19 Comments on “Cost Killer Girsky Could Euthanize Opel...”

  • avatar

    Opel is probably the best cars made within GM. I would go so far as to say Opel is a good car compared with jsut anything right now. But they are not making money and haven’t done for a long time. If you can not make a company profitable it should go. There´s too much capacity worldwide so it would be sound. In the fifthies Borgward was Europes biggest privately owned car maker. The world did not go under when Borgward was closed down.

    • 0 avatar

      Yeah, just what I suspected. Short-term profit is king for US companies. Selling your biggest innovator within the whole company makes perfectly sense to me … new GM is old GM. Time for a new GM death watch.

      • 0 avatar

        Opel may be someone’s idea of an innovator, but GM is going to Daewoo for their volume products now. If GM can make money selling the worst cars in the world(at least in the US – see previous Daewoos sold as Daewoos and Suzukis), why would they worry about unprofitable subsidiaries that design expensive cars?

  • avatar

    hey here’s a novel idea… sell more cars.

    • 0 avatar
      Hildy Johnson

      If you lose money on every car you sell, that might not really help.

      • 0 avatar

        Thought the idea was to sustain a unit loss, but to make that up on the volume…

      • 0 avatar
        Educator(of teachers)Dan

        @Robert.Walter, I know you’re being a wise guy but that idea (that I know was voiced by a GM executive at some point), has it ever been enumerated in print where someone tried to actually spell out how that would work. That idea sounds so insane to me well… It’s like Lewis Black’s explantation of aneurysms.

  • avatar

    Could never understand why GM didn’t take the oppotunity to merge Vauxhall and Opel at the time of the failed Magna takeover. It would have cut costs from bodywork to brochures and it would have made the cars more desirable in the UK, where a German brand is now seen as the be all & end all of car buying.
    Maybe if they did this & axed some of the more useless models then it might manage to turn itself around. Of course making the Astra as big as an old Vectra & turning it into what looks like Seat Leon copy didn’t help.
    The guy from Reuters speaks the truth. The car market in Europe is about to find out in no uncertain terms that there are too many brands for too few consumers & there have been for too many years. That what makes the continuing Saab saga so ridiculous. The market for their cars has gone, settled into grey German dieselness.
    And speaking of Seat, I’ll predict they’ll be close behind. It won’t be long before VAG drop them like third-period French.

    • 0 avatar

      Merging Opel and Vauxhall wouldn`t save anything. They are already merged in the most important areas – they sell the same cars, with the same names – Corsa, Astra, Insignia et al. In the early 1990’s the names were standardized – Kadett became Astra, Nova became Corsa etc.
      As for brochures a) not a big cost and b) the German, French, Swedish Opel brochures would have to be re-printed in English anyway so having a different circular badge on it costs nothing.

      • 0 avatar

        @mike978 You are exactly right. Vauxhall is, today, essentially GM Sales UK, rather than an actual car making organization.

        Interestingly, Vauxhalls are not sold in Eire (for historic political reasons), that market choosing instead to have RHD Opel badged cars (with, one would assume, English language Opel brochures and manuals).

  • avatar

    Is Opel’s intellectual property worth over a billion dollars in losses per year with no end in sight? In retrospect, GM was smart to pay the $2B to get rid of the Fiat option (dumb to get involved in the first place). GM should put its proverbial tail between its legs and come up with a plan with the German government and a German automaker to get rid of Opel even if GM has to pay some cash. Another alternative: Tata. Indian pride might like another British automaker, Vauxhall, in its stables. Just get rid of it.

  • avatar
    Hildy Johnson

    “German carmakers generally do well, but only on the back of strong exports powered by a soft Euro.”

    Soft relative to which other currency, exactly? The U.S. Dollar, or the Renminbi? The secret sauce is pricing power, not low-balling. Fiat and the French car makers work with the same currency and are struggling, too, just like Opel – because they have little to offer in the way of luxury cars.

    “What you’re seeing here is a prelude to a massive restructuring, and I don’t think it will be limited to GM. Europe has soft-shoed this for a long time. It’s awfully close to a total meltdown.”

    Cheap talk, a dime a dozen. Who the heck is “Europe”, and exactly how total is “total”? Opel is the only German car maker in trouble (not counting the purely financial follies at Porsche). The French politicians will make sure they don’t lose their car makers. Say what you want about that, but at least they still do have an industry, unlike the British.

    Among the major car makers, that leaves Fiat, which likely won’t receive much help from the Italian government. So, they may bail and become a US/Brazil-based company.

  • avatar

    GM needs to be patient with European operations. Opel losses have been cut down significantly. 580 Million lost for the first 9 months vs 1.19 Billion lost in first nine months of 2010. Opel is on track to be profitable if they can slightly increase pricing and reduce labor/operational costs. Opel needs to get on board soon or risk getting canned. There is no excuse to be non profitable, 10 years in a row. The Union bosses in Germany seem just as boneheaded as the ones back home.

    Girsky and Akerson are going to twist some arms if necessary to make Opel profitable. They are ruthless business men who know how to get things done. I am confident of GM’s prospects under these two.

    Opel sales are up significantly for 2011. For the first 9 months Opel/Vauxhall sold 938,000 compared to 881,000 in 2010. Chevy sold 379,000 vs 348,000 in 2010. GM just needs to control costs a bit and increase pricing margins while sacrificing some sales in EU. On an annual basis GM is ahead my more than a million cars, so they are in no danger of losing their sales crown by losing few sales. Opel is leveraged very well as Buicks in China and US. The Excelle/Verano will sell north of 30,000 units a month. GM needs to take Opel slightly upmarket with higher pricing.

    GM’s priorities lie in South East Asia, where Toyota literally owns the market (Around 40% market share). GM is shooting for 10% market share by 2013 from the 1.3% they held in 2010. If they get to the projected 10% in two years, most of the gains will come at the cost of Toyota, who is already struggling with production stoppages and high yen. GM’s SE Asia sales are up 60% so far this year. Opel based products will do very well here.

    Killing or Selling Opel is stupid.

  • avatar

    Automaker Cash Debt ProfitMargin
    GM 33B 11.7B 6.60%
    Ford 20.6B 95.1B 5.06%
    Toyota 39.6B 148B 1.16%
    Honda 17.1B 48.7B 2.75%
    Volkswagen 36.4B 87B 10.87%
    Nissan 11.4B 48.5B 3.34%
    Volvo 4.31B 19B 5.47%

    • 0 avatar

      If these numbers are accurate, it would seem that a) not only is Toyota in a very weak financial position to defend against VW, but if the economy slows down and the price of fuel doesn’t rise, it may not be inappropriate to think about a Toyota death watch.

      And where I was purely cracking-wise above about volume erasing unit losses on each unit sold (Dan, without other factors in play, such is unsustainable), I’m deadly serious here, toyota’s numbers look shockingly bad.

  • avatar

    If no innovative solution can be found to size the enterprise to its near-term market share, the carve-out the production facilities from the development and distribution parts of the business.

    Close the production facilities and import Opels from the US, Mexico, or China.

    If you don’t need the German r&d troops, then stop piddling about, just shut it all down.

  • avatar

    Given the immediate economic future for Europe, maybe it wouldn’t be a bad thing for GM to walk away from Opel. Sell it for what they can get. Then put Chevy dealers in across the street selling the same cars with bow ties on the grill.

  • avatar

    I think GM’s ongoing issue with Opel is that they have continued to treat it like a separate company. For all Ford’s faults, the “One Ford” plan has the added benefit of helping them to manage their worldwide production better (not that they seem to be taking full advantage of that).

    The idea that Opel is, somehow, an automaker in its own right is delusional. GM’s dalliance with Fiat has also deprived it of a product to field in the Europeanization of vans in the US against the Sprinter, Ducato and Transit, since GM has no van product of their own in Europe.

    I say treat Opel like a marketing arm. There’s no reason that the Buick and Opel offerings can’t totally mirror one another. Opel should abandon the low end to Chevrolet and the high end to Cadillac.

    That’s my 2¢…

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