GM Europe has racked up enormous losses every year since 1999; in 2012 it bled $1.8 billion while GM North America earned $6.9 billion before tax. Yet the Detroit mothership continues to pump billions into its European division, like a deluded gambler convinced his luck will change.
Max Warburton, automotive analyst at Wall Street researcher, Sanford C. Bernstein, isn’t expecting GM to ever hit the jackpot. ‘It’s just so hard to see how Opel/Vauxhall can be saved. It’s mired in heavy losses with a complex set of cost issues and a profoundly unappealing brand. And it has no export markets to compensate for European losses.’
But GM will plough on, pumping €4 billion into Europe over the next three years, in addition to a €230 million investment in German testing and engineering facilities. And it’s cutting costs through an alliance with Peugeot-Citroën (which itself is mired in record losses), to share platforms and distribution costs, saving GM and PSA $2 billon annually by 2017.
Are the cars the problem?
Karl-Thomas Neumann, who became Opel’s fifth boss in four years in March, doesn’t think the model line-up is to blame. ‘The product we have is not our problem. We have some fine products on sale and in the pipeline.’
Think about that: GME has a fine-looking range of decent cars, but they’re hardly catnip to consumers. Even if the new wave are demonstrably improved by new, more efficient engines and GME’s first dual-clutch ’box in 2014, rivals aren’t going to rollover for Opel, as it rolls out 23 new cars by 2016.
It’s all about brand, stupid
GM executives have long admitted that Opel has an image problem, contributing to declining European sales (down 15.8% in 2012, in a market down 8.8%). While Europe’s recession is a continuing nightmare, it’s the same for every brand. But GM has problems of its own making, such as the messy attempt to offload Opel to Magna in 2009, that seriously damaged consumer confidence in Germany.
GM bosses are tackling the image problem. Tina Müller, a marketing trailblazer in women’s beauty products, will start as Opel/Vauxhall chief marketing officer on 1 August. ‘We will give the brand back the shine it deserves,’ says Neumann. First up is the promising Monza coupe concept, to be fully shown this autumn. This halo car contrasts with a more downmarket marketing initiative: the Astra replacing a Kia as Top Gear’s new reasonably priced track car.
How is Vauxhall affected?
Vauxhall in the UK has been performing far better than Opel in Germany: 2012 UK sales dipped by just 1%. But the overall British market increased by 5%, and key rivals VW and Hyundai grew.
Insiders say Vauxhall is better at satisfying customers than its continental cousin, with stronger dealers and smarter online sales-lead-generation. Dealerships are being upgraded to polish the brand and enhance the consumer’s experience.
Analyst Tim Urquhart of IHS Automotive still fears Vauxhall is pushing cars into the market, rather than sating genuine desire. ‘Vauxhall’s success in 2012-3 is good stuff, but how have they done it? Through keen discounts and warranty offers.’
Will GM pull the plug on Europe?
How long can Opel/Vauxhall go on making losses? ‘As a global automotive company GM needs a strong presence in Europe – in terms of design and development as well as manufacturing and sales,’ said GM chairman Dan Akerson. ‘Opel is a key to our success and enjoys its parent’s full support.’
This global presence comes at a massive cost: $14 billion of losses over 12 years. But there is a brutal logic to it: ‘The costs of closing it are clearly too huge to contemplate,’ says autos analyst Max Warburton. ‘It’s easier to lose $1.5 or 2 billion this year and keep hoping it will get better, rather than bite the bullet and burn $13 billion closing it.’
‘We’re in a recession. Recessions are supposed to kill struggling businesses. Opel/Vauxhall is about as close to “game over” as one ever sees in the industry. But GM will plough on, against all the odds,’ says Warburton.
The US may be the home of country music, but bosses aren’t listening to Kenny Rogers’ words: ‘You gotta know when to fold ’em, know when to walk away…’ Music to the ears of Luton and Russelsheim, as the gambling goes on.