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GM seen accelerating Opel restructuring as sales plunge
DETROIT (Bloomberg) -- The financial crisis in Europe is adding new urgency to General Motors' attempt to turn around its money-burning Opel unit.
GM, which has already trimmed its European work force by 5,800, is considering a variety of additional steps to stem the losses including looking to find greater cost savings between Opel and Chevrolet operations in Europe, Tim Lee, president of GM's international operations, told reporters earlier this month at the Detroit auto show.
In addition, the U.S. carmaker has made a number of high-level personnel changes as it tries to steer the European brand back into profit, including appointing Lee, whose responsibility includes Chevy in Europe, Dan Amman, GM chief financial officer, and Vice Chairman Steve Girsky to the Opel supervisory board. Girsky was named chairman of the board.
And on Thursday, Mary Barra, GM's senior vice president for global product planning, joined the supervisory board and Johan Willems, a longtime GM spokesman, joined Opel's management board as head of communications.
GM could also move some production from Korea to Europe to boost revenue and use assets there, according to three people familiar with the matter.
In addition, Stefan Bauknecht, a Frankfurt-based fund manager for Deutsche Bank AG investment vehicle DWS, said this is the time for GM to work more aggressively with unions to lower costs. "The negative swing in the European automotive market increases the pressure for both the management and trade unions to find a compromise," said Bauknecht.
GM CEO Dan Akerson has lost more than $2.34 billion on GM's European operations since pushing to call off the sale of the Opel brand in late 2009 and as much as $13 billion has been lost by the European unit since 1999.
Plans to reach break-even on an operating basis were scrapped in November as the continent's economy teetered. GM's European sales dropped 15 percent in December, led by an 18 percent drop to 72,666 units at Opel, according to data from the Brussels-based industry organization ACEA.
Opel/Vauxhall's share of the market in EU and EFTA countries fell to 7.3 percent last year from 12.6 percent in 1993, ACEA said.
The restructuring in Europe by post-bankruptcy GM was going according to plan, executives told reporters as recently as the Frankfurt auto show in September. Two months later, GM said it couldn't meet its target of breaking even before restructuring costs.
Europe operations lost $580 million before interest and taxes from January through September, the U.S. automaker said Nov. 9 in a statement. "What we are looking at is an increasingly challenged economic environment going forward, with a lot of uncertainty," Ammann told analysts. "We've got to get the break-even point lower, get the revenue higher, in order to be profitable in that kind of market environment."
GM had $900 million in restructuring and early-retirement costs in Europe and cut 5,800 jobs there through Sept. 30, GM said in the regulatory filing. Those efforts included closing an assembly plant in Antwerp, Belgium, the company said.
The company added it expects an additional $300 million in costs by the end of this year to complete the programs, which will affect 1,600 more employees. GM won't rule out cutting more jobs or closing additional plants, Ammann has said.
While GM has avoided compulsory dismissals, it has other options, said a union official.
"There's always an opportunity where they're not looking to remove people who don't want to be removed: for people who want to go self-employed, emigrate, find some other job, retire, take early retirement or whatever it is," Andy Faughnam, a Unite the Union representative for the Opel/Vauxhall plant in the London suburb of Luton, said by telephone.
"There are significant opportunities yet remaining in Europe in terms of the operation of Opel/Vauxhall and the operations of Chevrolet and Cadillac," Lee said. For example, he said, Chevrolet and Opel run separate warehousing and spare- parts operations. "We've not brought back together a lot of the behind-the-curtain things that could be together," he said.
The automaker is also looking to control rising material costs and better offset fluctuations in currency, said a person familiar with the effort. One idea being discussed involves transferring work from Chevrolet in Korea to Europe, said three people familiar with the matter. The people asked not to be identified because the planning was private.
Klaus-Peter Martin, a GM spokesman, declined to comment on the plans.
Part of the problem is that Opel lacks the cachet of Volkswagen and others manufacturers in Europe and has been unable to charge enough to cover high German labor costs. "They still need to skinny-down the operation," Joe Phillippi, principal of consulting firm AutoTrends Inc. in Short Hills, New Jersey, said. "Their costs are clearly still too high."
Selling Opel would be a difficult option for GM because the automaker has relied on the unit for engineering work on small and mid-sized cars, such the Chevrolet Malibu and Cruze.
"I almost see Opel's problems as not solvable," said longtime industry watcher Maryann Keller, principal of a self-named consulting firm in Stamford, Conn. "The question is how do you get rid of it and still protect your intellectual property because that's where your small-car development is."
GM is investing 11 billion euros in the Opel brand through 2014, Karl-Friedrich Stracke, president of GM Europe, has said.
While ruling out a sale, GM hasn't dismissed reports in Germany that it is talking about a sales and distribution alliance with its partner in China, SAIC, to extend Opel's network of dealerships in the country and help it reduce its dependency on the struggling European market.