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What's Wrong With Opel?


         
 
Jerry Flint, 01.18.10, 02:11 PM EST ( Forbes )
Posted by  : HSFAMES GLOBALMINDS ( Jan 20, 2009 )

GM's German unit is so important that the automaker's board defied the government and its own president to keep it. But it needs fixing. Here's how.

So what's wrong with Opel, the German-European unit of General Motors? It's important enough: 1.9 million sales 10 years ago, and the heart of GM engineering for front-drive cars. The cars GM builds here, such as the Chevy Malibu, are derived from Opel's designs.

But Opel has been a major money loser. GM Europe, which is really Opel, lost $3.6 billion before taxes in the three years before 2009, which probably was another big loss. Our government, bailing out GM, apparently pushed to sell it. But the GM board reversed that effort and pushed out the GM president who tried to sell it.

But the question remains: What's wrong with Opel? Germany is a high-cost production base,true--much of Western Europe is. But other mass auto producers make money: VW,  Fiat , even European Ford, which builds similar products for similar customers.

They all have the same problems but they found solutions; I count four of them. Let's look at what the others do.

1. Buying companies and brands in lower cost countries. VW bought Skoda in the Czech Republic and SEAT in Spain. Renault bought a carmaker in Rumania. Fiat is even taking over our own Chrysler. Opel hasn't done this.

2. Moving upscale to profit from more expensive cars. This has been a major VW strategy, expanding Audi and buying Bentley and others. Opel has not expanded up.

3. Competing worldwide, especially in the growing markets. Fiat is big in Brazil, VW in China. Opel doesn't go there.

4. Building trucks, commercial vehicles, delivery vans. There have been years when European Ford made more money from these than all its cars put together. Not Opel. It does a small joint van venture with Renault, but it's not much.

These aren't easy strategies, but the Opel problems have been going on for years, so it's reasonable to believe GM's Detroit managers were sitting on the German unit. GM has owned Opel for 80 years but it has only 8% of its home German market. Maybe that's why there was anger there when the GM changed its mind about selling Opel.

One of Europe's best known auto journalists told me that Detroit GM is seen by Germans as “the dead hand of bureaucracy, suffocating Opel, blithely toying with its fate and the scope of its operations from afar,” and, he said, this was “not far from the truth.”

But GM needs a successful Opel to recover. So what can be done?

Opel produces in Spain, Poland and the U.K. (using the Vauxhall car name) but 40% of Opel's production is in high-cost Germany. The German union opposes moving production out of the country, and half the Supervisory board members represent labor. The Supervisor board, under German law, is independent, which GM in Detroit sometimes forgets.

But VW got around that. Perhaps it's time GM and Opel found a little company to buy in Eastern Europe or Russia to create new brands and low-cost cars.

And pushing hard into the commercial vehicle business would be costly, going against well-established competitors like Ford and Fiat. But it's where the profits are and this vital market has been largely ignored for years now. It's time to move.

Expanding into big foreign markets? GM of Detroit seems to have preserved these for itself. Does it make sense for GM Opel to compete with GM Detroit in Brazil or India or China? Why not? The Germans have a certain prestige in auto making. If German Opel stole sales from GM in China, maybe it would steal more from VW or Toyota . The Germans always want to move out and conquer the world: Look at VW, Mercedes and BMW. Let Opel go at it.

And what about a higher priced car line? Toyota did it with Lexus. VW and Fiat do it. Yes, it's difficult—Honda and  Nissan are still struggling with theirs. But why not--something special, with new type engines, maybe the extended-range Volt type hybrid electrics, or something else that would separate a new luxury brand from the pack.

GM is pumping nearly $2 billion into Opel to keep it going. They need to move to some of these new strategies.The Opel symbol is a “Blitz,” a lightening bolt. It's about time they let that lightening strike.

One more thing: The newly appointed head of Opel is Nick Reilly, a Brit. He has a good record, but some say Opel, a German company, would run better under German leadership. Others say it doesn't matter because the Germans know how to follow orders.

I say be daring, take risks. Remember your Virgil: Audentes fortuna iuvat. Fortune favors the brave.
 
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