GM has legally formalised the restructuring of its European operation as the unit looks at various strategies to improve profitability.
IHS Automotive perspective | |
Significance | GM has said that it will consolidate all of its European operations, including its Opel and Vauxhall brands as well its Russian operations, under the same organisational structure for the first time under the Opel Group banner. Meanwhile, sources have said that Opel will stop selling the unsuccessful Ampera plug-in hybrid in Europe. |
Implications | It is a sensible strategy for GM to roll all its European operations into one organisational umbrella group especially now the company's European activities are in the process of being simplified and rationalised with the company opting to withdraw the Chevrolet brand from the region by 2016. The decision to end sales of the Ampera in Europe will be a significant blow to the company's senior management, who must now regard the model as a serious commercial failure. |
Outlook | The new structure is part of GM's overall corporate plan to help it achieve its ambitious target of taking an 8% share in the European market, as well as the highly ambitious drive to move from the third best-selling passenger car brand to overtake PSA and move into the second spot. It may also replace high-technology-content models like the Ampera with low-cost, low content models to cover the space left by the departure of the Chevrolet brand, according to a report. |
General Motors (GM) has announced that it has reorganised and consolidated all its European market activities, including for the first time its business in Russia, into one entity that will be known as the Opel Group, according to a company statement. Effective from 1 July the new organisation will be led by existing Opel management board CEO Karl-Thomas Neumann and the management board of the body it replaces, Adam Opel AG. The new organisation will also have its headquarters at Opel's existing corporate base in Rüsselsheim, Germany. As a result of the change, Opel Group will take over the financial responsibility for all the GM brands that operate in Europe, including Russia. Commenting on the change Neumann said, "Today, we are more than just Opel/Vauxhall. With the Opel Group, we align our organizational and legal entity structure in Europe with the business operations. We streamline our decision making processes and increase our efficiency. In brief: this reorganization is an important step in implementing our business plan DRIVE! 2022 and another sign of confidence of our parent company GM." The Opel Group will have around 100 white-collar management positions dedicated to co-ordinating the group across all its European brand activities.
DRIVE! 2022 is Opel's highly ambitious corporate plan with which it hopes to completely revitalise GM's European operations and drag the unit back into the black after years of sustained losses. As a result the Opel Group will look to target to a market share of 8% in Europe, increase profit margin to 5% while at the same time improving product quality and customer retention. The company also has a very bold plan to become the number two passenger car maker in Europe by sales by that date.
In a separate development, Automotive News has reported that Opel plans to drop the slow-selling Ampera plug-in hybrid from its product line-up from when the model is given a refresh next year for the 2016 model year in the US. The Ampera has simply not found anything like the traction that GM will have been expecting with sales numbering just 3,184 units in 2013, a decline of 40%. However, the sales picture for the Ampera in the first half of 2014 has proved even more stark with a 67% y/y slump to 332 units. GM refused to officially confirm the news but Opel CEO expressed his dissatisfaction with the sales performance of the Ampera earlier this year at the Geneva Motor Show. At the time he said, "All the governments in Europe said, 'We want EVs, we want EVs.' We show up with one, and where is everybody?"
Outlook and implications
The new Opel Group shows that GM is serious about giving Opel's European management team the latitude and autonomy to take the required action to turn the loss-making unit around. Karl-Thomas Neumann is undoubtedly a highly capable manager and the changes he has already been empowered to make shows that the company's US management are letting him get on with the task in hand, with the former Continental executive making notable changes since joining the firm in May 2013. The Opel Group legally formalises changes already made (see Europe: 21 October 2013: GM moves Russian operations back under GM Europe umbrella). Neumann was also consistent in claiming that Opel and Chevrolet overlapped unnecessarily in the European market. This was a very important battle to win, and Neumann got his way when GM announced earlier this year it withdraw the brand from Europe by 2016 while keeping Chevrolet's presence in Russia (see Europe: 5 December 2013: GM to focus on Opel/Vauxhall in Europe, Chevrolet to withdraw by 2016). In exchange, Opel opted to pull out of China (see United States - Germany - China: 31 March 2014: Opel invests EUR245 mil in Russelsheim, pulls out of China) and Australia. Opel has set a goal of profitability by 2016 and to become the number two brand by 2020. However, these goals will not be easy to achieve. GM Europe has consistently lost money for its parent company since 1999 and posted another USD284-million loss before interest and taxes in the first quarter of 2014; much of this loss was connected with the closure of the Bochum plant, which is due to be shuttered at the end of this year. GM's second-quarter earnings are set for release on 24 July and more loss is likely, despite signs that the European market is showing a gradual improvement, due to the ongoing closure process that the Bochum plant is currently experiencing.
Given the US-built Ampera's performance, it is not a surprise that GM is reallocating resources to more pressing needs. However, Opel showed a Monza concept at the 2013 Frankfurt Motor Show, which featured the Ampera's hybrid system mated to a CNG engine (see Germany: 22 August 2013: Frankfurt Motor Show 2013: Opel to showcase Monza CNG-hybrid concept). However, a Financial Times (FT) article has claimed that that Opel may reallocate some R&D resources towards building a new range of entry-level cars to replace the Chevrolet brand offerings in the European market. According to the report, Opel has been considering whether to enter the low-cost segment in Europe for some time, and management is now looking for new ways to expand the Opel range as part of the current restructuring. However, this strategy may not be the best way to return GM Europe to solid profitability, given the increasingly competitive nature of the low-cost car market in Russia and the inherent narrow margins generated by this vehicle type.