Chevy rising in Europe as Opel struggles

Frank Augstein / AP

Karl-Friedrich Stracke, CEO of Adam Opel AG, sits inside the new Opel Mokka. He is struggling to restore the GM unit to profitability.

By Paul A. Eisenstein, msnbc.com contributor

The products were nearly an afterthought when Opel opened its news conference at the Geneva Motor Show last week.

Any other year, a new model like the Mokka crossover or Astra OPC would have garnered the spotlight. But when the German automaker?s new CEO Karl-Friedrich Stracke took the stage the focus was more somber? as declared his goal: ?to return our European operations to sustainable profitability.?

He?d better -- and soon.? Opel ran up $700 million in red ink last year, detracting from parent General Motors, which still posted a? record $7.6 billion in profit for 2011.

Turning things around at Opel has proved far more elusive than anyone expected.? Stracke?s predecessor Nick Reilly was summarily ?retired? a few months back after failing on his promise of delivering at least a break-even at the European subsidiary.

A frustrated GM has tried one option after another in recent years, hoping to turn the corner on Opel?s problems.? It has cut capacity, rolled out a flood of new products and even considered selling a controlling stake in the unit shortly after emerging from its own 2009 bankruptcy.

Now the automaker has inked an expansive alliance deal with erstwhile rival PSA Peugeot Citroen.? The two new partners insist they can not only reduce costs but also introduce an assortment of new products and powertrains that could give them a competitive edge in the overcrowded European market. But considering the Continent?s worsening economic crisis -- never mind Opel?s recent history -- skeptics abound.

?They?ve got to take out a lot of mass,? said analyst Joe Phillippi of AutoTrends Consulting, referring to Opel?s excess capacity, bloated workforce and out-of-sync cost structure.? ?But any savings are likely to take time.?? At best, he cautioned, the fruits of the new alliance won?t be ripe for 18 to 24 months -- if at all.

Two decades ago, Opel was one of Europe's automotive powerhouses.? The brand was locked in a battle with leaders like Volkswagen and Ford but generated reasonable revenues and was considered a likely spearhead for GM as it opened emerging markets from Brazil to Russia and beyond.

But when GM bid to build a new plant in China, regulators there suggested the maker go to market instead with the Buick name -- reviving a brand that was a favorite of China?s last emperor as well as communist leader Zhou Enlai.

Meanwhile, as Opel began running into problems its expansion plans were scaled back, and GM shifted focus to Chevrolet, a brand long dominant in the Americas.? It even brought Chevy into Europe, using the brand to market its lower-priced, Korean made models.

Ironically, while Opel has steadily lost ground, Chevrolet has become one of Europe?s fastest-growing marques, setting one annual record after another.

Some thought Chevrolet might even replace Opel if GM had gone through with a sale of a controlling stake in Opel.

In the end, Opel stayed in the GM family, and the plan is for peaceful coexistence, insists Susan Docherty, president and managing director of Chevrolet Europe.?

?There?s absolutely room for both of us,? she insisted in an interview, noting that despite its fast growth Chevy Europe sold just 206,000 vehicles last year, barely 20 percent of Opel's volume.

Still, there have been plenty of rumors and reports in recent months that GM might again try to find a buyer for Opel. GM CEO Dan Akerson has repeatedly denied a sale is on the table. And the Peugeot alliance reveals an alternative strategy.

The two makers will cooperate on a variety of projects, including joint component and part purchasing that should shave costs by enhancing economies of scale.? Peugeot will provide new and more efficient diesels Opel can use -- critical in the diesel-friendly European market.? And the partners plan to develop new powertrains and product platforms that should reach market sometime after mid-decade.

?It?s very clear we?re looking for synergies,? said Opel chief Stracke in an interview, but he acknowledged it will take time to pull things together.

Stracke cautioned that the alliance won?t solve anything. Notably, ?it?s not set up to fix anybody?s capacity problems.? Peugeot needs to fix theirs and we need to fix ours.?

He hinted that Opel is studying its options, with many observers expecting some major announcement in the coming months. That would follow previous steps that have already reduced Opel?s capacity by 400,000 units annually.

New cuts won?t be easy, especially at the maker?s highest-cost plants in Germany, where it is subject to restrictive labor laws -- and where union leaders have significant say in management decisions.? But a recent shake-up in the leadership of union IG Metall could provide an opportunity for change.

Jim Hall of 2953 Analytics is skeptical that the Peugeot alliance -- or even further production cuts -- will solve Opel?s problems.? ?The more serious problem,? he says, is the maker?s weak image among European buyers, ?and only product can solve that.?

That?s where the Mokka and Astra OPC come in -- along with the new Ampera, the plug-in hybrid sibling of the American Chevrolet Volt (which also is being sold in Europe).

Both Ampera and Volt got a much-needed boost last week when a jury of journalists declared them jointly the European Car of the Year. Stracke said that even before the award Opel had lined up 7,000 advance orders for Ampera, which only went on sale last month.

But it?s going to take a lot more volume than that to fix Opel?s problems. And while the new models and the new alliance will likely help, it?s anyone?s guess when GM?s European arm will finally stanch its bleeding.

Source: http://bottomline.msnbc.msn.com/_news/2012/03/12/10612802-chevy-rising-in-europe-as-opel-struggles

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