The ‘New GM’ is likely to sever ties with Opel/Vauxhall, leaving a business with almost no global presence outside Europe. How will the soon-to-be former GM Europe survive, asks Mark Bursa
Mark Bursa interviewed by Dave Leggett
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As General Motors melts down, most of the attention has been focused on Detroit – the departure of Rick Wagoner, and the likelihood of a quick in and out of bankruptcy to save the core of the crumbling empire.
What’s being proposed is a very US-centric solution, but where does that leave GM’s European operations? It’s becoming clear that Opel/Vauxhall and Saab will have no place at the table in a restructured “new GM” – that will be based around the Chevrolet and Cadillac brands.
Saab may be doomed, but on the face of it, Opel/Vauxhall should be salvageable. It has an excellent range, covering all the mainstream European sectors, spearheaded by the current European Car of the Year, the Insignia. A lot of the necessary turnaround work on the business has already been done – though the knife will need to be wielded again before a truly right-sized business is created.
But there are significant problems. Some of these are structural, some political, and some self-inflicted as a result of GM’s recent strategy. And these will present significant challenges to any new owner.
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By GlobalDataThere is interest in the company – most notably from the government of Abu Dhabi, the cash-rich Gulf state that fancies becoming a global player in key industries such as aerospace and automotive. But getting Opel/Vauxhall to a point where a deal can be done is going to be tough – especially within the same 60-day timeframe as US President Barack Obama has given GM to solve its woes.
European governments are reluctant to get involved. Despite calls for partial nationalisation, German Chancellor Angela Merkel has only pledged financial support if and when a private-sector investor steps in.
It’s the same in the UK –trade secretary Peter Mandelson wants Vauxhall’s Ellesmere Port plant to build electric cars, and money is likely to be forthcoming for such a project. But not enough – Jaguar received GBP27m toward its GBP400m LR1 project. Vauxhall is likely to receive a grant in the tens of millions too – a far cry from the billions that GME President Carl-Peter Forster says the company needs.
The issue in Germany is made more complicated by the growing realisation that Opel has too many plants – it has nine, against Ford’s four. The UK plants at Luton and Ellesmere Port are already lean operations, as is the relatively new Gliwice plant in Poland. Figuerelas in Spain has relatively low labour costs, and is responsible for most Opel Corsa output.
No, the plants most likely to shut are Antwerp in Belgium and, shockingly, two German factories – Bochum and Eisenach. As you might imagine, this has not gone down well in German political circles. The cruellest cut would be Eisenach, built in the 1990s in former East Germany as a symbol of regeneration and a blueprint for efficiency. But wages are now at German, not East German levels. The fact remains that Opel/Vauxhall has too much capacity and too much cost, and something has to give if it is to survive.
It may be possible to right-size GME’s European operations, but where does the company go from here? What you’re left with is a company that operates only in Europe – and nowhere else. This stems from GM’s decision in the early part of the decade to establish Chevrolet as a global brand, with significant success.
The acquisition of Korean automaker Daewoo gave GM access to low-cost manufacturing expertise, and subsequent global expansion into China and Russia and other parts of Asia has been under the Chevy banner. Latin America was already Chevrolet territory, and the brand has been introduced into Western Europe, as a budget brand sold through Opel/Vauxhall dealers.
The downside for Opel has been its withdrawal from the few non-European markets in which it had a presence. Opel models, such as the Corsa, which were built in Brazil and China, will be replaced by Korean-developed Chevy-brand cars such as the Aveo and the new Spark.
If future growth will come from Emerging Markets – and it will – whoever owns Opel will be at a significant disadvantage. With no BRIC manufacturing presence, Opel will have to start afresh, as an importer, and work up to local assembly via CKD. It has good products, but with European costs – which means Opel will be forced up-market, into Audi/Volvo territory, if it is to achieve any penetration in China, India or Russia.
You could argue that’s where the brand should be – indeed, back in the 1950s and ‘60s, Opel was Germany’s ‘second brand’ after Mercedes-Benz, building luxurious autobahn cruisers such as the Kapitan and the Rekord at a time when Audis had two-stroke engines and BMW made bubble cars.
But for the past 30 years, the emphasis has been on volume – VW and Ford have been the key rivals. But these are global companies with global footprints and global brands. How will ‘new Opel’ leverage global economies of scale from, say, an Astra built at one or two European plants, compared to what VW can achieve with the ‘world car’ Golf? Opel doesn’t even have a consistent brand across Europe.
Ah, the old Vauxhall brand chestnut. If only they’d bitten the bullet and ‘Opelised’ in 1982, when a single distribution structure was created. But in the 1980s, Vauxhall was a shining star in the UK. The Cavalier became the sales rep’s company car of choice. Market share was rising rapidly as British Leyland and Ford lost ground. Keeping Vauxhall was a no-brainer, and even though the debate has reared up again since the ‘80s, that strong UK presence (accounting for around one-third of Opel/Vauxhall sales) means the debate has been put to bed, probably for good.
In a way, it could help – keeping Vauxhall’s UK position as a volume brand might allow the German Opel brand to move quietly up-market elsewhere in the world. There’s not that great a quality gap between Insignia and, say, the Audi A4, while the likes of Audi and BMW have themselves moved into the small car sector, which justifies keeping those Corsas, Agilas and Merivas in the Opel range.
Prior to his dismissal, Rick Wagoner had talked about maintaining technical and financial links between GM and a sold-off Opel/Vauxhall. But you suspect that “Nw GM” will require a cleaner break. Of course, there would be nothing to stop “New GM” and “New Opel” to renegotiate new alliances, for example on platforms or electric cars.
Equally, “New Opel” could look to add new partners. It already sources cars from Suzuki and builds vans in partnership with Renault-Nissan. It shares engines with Fiat. This is the modern way, as pioneered by PSA and Fiat. And Opel/Vauxhall has a lot to offer – those French and Italian automakers must wish they could create as successful a D-segment car as the Insignia.
Indeed, Opel/Vauxhall could make a very good fit with another European automaker. It would fit particularly well with Fiat, offering reliable, northern European brands that work in markets where Fiat struggles to sell anything bigger than a Punto. And a solid, dependable German brand such as Opel is more likely to be acceptable as a premium brand in Emerging Markets than sexy-but-flaky Alfa Romeo.
Partnering with another automaker would also give Opel/Vauxhall access to global distribution and global manufacturing – something that an independent Opel would have to establish itself.
Trouble is, there are a limited number of takers among Western automakers. PSA is in turmoil; Ford is keeping its head down. BMW got burned with Rover, and Daimler got burned with Chrysler, though there might be some logic in a “German solution”. VW probably has enough brands. Which leaves Messrs Ghosn and Marchionne as the men most likely to…
Alternatively, outside the Abu Dhabi discussions, are there any other potential Emerging Markets takers? Not really. The Russian oligarchs are too busy losing billions; Tata has enough on its plate. As for the Chinese, it’s probably too much, too soon. Chinese automakers have virtually no experience in the West, and scant grasp of sophisticated brand management. If the biggest Chinese car maker can’t make a go of a specialist brand such as MG, how badly might they handle Opel/Vauxhall?
Carl-Peter Forster told Der Spiegel he was talking to “interested parties from the private equity sector and with sovereign wealth funds”, which doesn’t exactly narrow it down. But at least there’s someone out there prepared to take a gamble.
Possibly the biggest fear is some form of bodged-together political solution, leaving a weakened company propped up by government loans, with politicians meddling about in the background. Handled badly, and you’ve got another Rover on your hands. The “German Patient”- and its English cousin – needs the best possible care, and fast.
Mark ‘Coolbear’ Bursa
