Profit engine

Opel's interim CEO since November, Nick Reilly, has set ambitious goals to bring the company back into profitability quickly, but whether it can be done remains to be seen.

Reilly said in a recent interview with the London Financial Times that the European subsidiary of General Motors plans to reach the break-even point by 2011 to begin profiting in 2012. His plans call for a four or five percent profit margin within four years. Opel includes British manufacturer Vauxhall.

Opel spokesman Stefan Weinman said the company will achieve profitability by increasing its production and lowering its break-even point in a market which will rise gradually over the coming four or five years.

The company plans foresee enough new models to account for about 80 percent of what it currently produces. They will include cars with alternative-energy drives and redesigned existing models, while personnel cutbacks eliminate about 8,500 positions across Europe.

Opel is expecting a difficult year in 2010 as most European car scrapping subsidies are either depleted or about to expire. Many consumers who were going to buy a new car have already done so, according to Weinman.

"Of course it's very clear part of the extra volume we saw in 2009 will be missing in 2010," he said. "But I'm sure the market is moving in the right direction. The question is how quickly it will do so."

Organizational tangle

Christoph Stuermer, an auto sector analyst at IHS Global Insight, said taxes and other financial obligations could still turn a four or five percent profit margin into losses.

"By addressing the operating margin, (Reilly) is giving a guideline as to how deep he wants to cut into the organization and how much he wants to cut costs," Stuermer said.

Opel is controlled by a network of some 60 independent legal entities, and merging them into one unit has been a key requirement of labor unions, according to Stuermer.

"The previous organizational structure of General Motors in Europe was more or less dysfunctional," he said. "If you have a dysfunctional organization, you can have whoever at the top, and it's not going to work out. I haven't seen a clear announcement as to how Opel will be structured organizationally in the future."

Appealing products necessary

Reilly told the Financial Times he is confident European governments will help finance his plans, which will cost some 3.3 billion euros ($4.7 billion).

Stuermer agreed, saying governments are "already scrambling to give money to Opel and General Motors."

"In the market situation we are in, revenue is more or less determined by external circumstances," he said. "If you start putting new cars on the market, it at first costs you a lot of money. The only way that (Reilly) can sort of possibly hope to make money from it is by sinking a lot of money into green technology and increasing the image or the attractiveness of his products."

Opel's Weinman said developing more appealing cars is central to the company's plan.

"We will be able to reduce our costs, but at the same time we need to grow, and we can only do that if we have very attractive offerings," he said.

Success with compact cars

Opel will continue to produce its successful Agila model, a compact car intended to have a stylish appeal to young people, according to Weinman. The Agila is produced in cooperation with Japanese manufacturer Suzuki.

The company may also decide in the first quarter of the new financial year to develop another compact car for the same demographic.

"We have the feeling that segment can support a second vehicle which will be more design-oriented," he said. "It is certainly a vehicle which is missing from our portfolio at the moment."

General Motors recently scrapped plans to sell Opel to the Canadian auto parts company Magna. The company announced earlier this month it would close its European headquarters in Zurich.

Reilly is General Motors' executive vice president and the president of General Motors International Operations. A search for a permanent CEO for Opel/Vauxhall Europe is underway.

Author: Gerhard Schneibel
Editor: Sam Edmonds