Nothing new here. Opel isn’t contributing to the black ink on GM’s bottom line. Der Spiegel doesn’t like GM, and if it pushes rumors via speculation, it might actually get the company to consider bids for the European unit. The one variable here, GM Chairman and CEO Dan Akerson, may have already bitten. We can’t tell, because GM’s response when Der Spiegel’s and Autobild’s report came out last week was that it does not, and cannot comment on speculation.
The speculation is getting sillier, with news reports saying Akerson & Co. are speaking with potential Chinese buyers and Volkswagen AG. Why would VW want another mainstream brand? To become even more like ‘50s-era GM?
One thing’s certain: if GM sells Opel/Vauxhall, it will become more like pre-Fiat Chrysler, a regional automaker strong only, in GM’s case, in North America, China and perhaps parts of South America. Yes, the U.S. is the second-largest market in the world, but the European market, added together, is still slightly larger.
By Saturday, Reuters reported that Opel union representative Rainel Einenkel was demanding that company management deny reports it’s considering an Opel sale. Akerson has been silent.
Opel does have a problem with profits. The United Auto Workers must be highly envious of IG Metall’s strength and wage-increasing power. To turn red ink into black, Opel has two options. It can raise the transaction prices of its products in Western Europe and make a bigger profit per vehicle, or it can cut costs.
The first option is not as outlandish as it seems. Opel was successful as an Audi competitor in the 1960s and ‘70s, when Audi was a step up from Volkswagen, but wasn’t as upscale as it is now. There’s room in the European market for a kind of German Buick. GM ran Opel well until the disastrous Roger Smith era, when Inaki Lopez cut costs on the German brand to the detriment of its reputation. Like Buick, which is on the upswing in part because of the Opel Insignia-based Regal, Opel can recover.
The second option means that Opel would have to move a good portion of its production outside of Germany and the U.K. (Vauxhall), which is what VW has done since the Berlin Wall fell. Moving more of GM of Europe’s production east of the old Iron Curtain is a viable solution, though clearly that’s not what the union representative has in mind.
The first option is predicated on GM’s current effort at making Chevrolet a global brand. Does Akerson figure Chevrolet and Cadillac are the only brands GM needs there? Chevy has had a modicum of success with cars like the Cruze and the Spark, but most of its success comes from the volatile Eastern European market. It’s pretty clear that Akerson, coming from a telecommunications and venture capital background, still doesn’t understand how long the auto business takes. Not just the time needed to design, engineer and develop a new model, but how long it takes to make a brand successful in a new market.
Short answer is that it takes two generations of good product. The Chevrolet/Daewoo Lacetti doesn’t count, so figure on six to eight more years of the Chevy Cruze along with another eight to 10 years for the Chevy Spark and upcoming Sonic. Akerson will need more than those three models to make non-Opel GM successful in Western Europe.
Cadillac, which has struggled and failed to make it in Western Europe for at least a decade, doesn’t have the right product, yet, and hasn’t had the acumen or patience to make anything out of what it has for that market. The current CTS is a good start and the next model should be even better, and the ATS (3 Series competitor) is key to a Western European assault. With the ATS scheduled to launch in the U.S. as a 2014 model, two cycles means Akerson will have to wait until 2024 to see much Cadillac success.
If Akerson doesn’t have that kind of patience, his Cadillac division will be no more “global” than Ford’s Lincoln, which he recklessly disparaged last week.
I understand the pressure GM’s CEO feels. Wall Street was the first to lose patience, and the GM common stock that rose briefly to $39 per share shortly after its $33 initial public offering last November is now worth just $28.59 at close Monday. Akerson wants to raise its value so that the U.S. Treasury can sell its 26-percent interest in GM, which coincidentally, lifts executive salary limits.
Selling Opel may give GM stock a swift, short-term boost, but in the long run, repairing it is the only solution. Better design and engineering will help, and Opel/Vauxhall already has a head start. Opel/Vauxhall should cede its lower-priced models to the Chevrolet line, but then, so should Buick. I’m not convinced GM has the will to strengthen the price delineation between Chevy and its step-up brands.
Moving some GM of Europe production eastward is the more viable solution, even when it intensifies the anger from the German press, government and labor union. Has Akerson failed to learn that this business is not easy? Perhaps he should ask his friends at Lincoln.
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