Opel Woes

Rough Road For Carmakers

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  • Why it matters

    Why it matters

    German car maker Opel aims to return the business to profitability, but is facing a series of problems.

  • Facts

    Facts

    • German car-maker Opel lost €623 million, or about $794 million, last year.
    • Sales in Russia have declined by 12 percent.
    • Opel is still far from achieving its goal of a 10 percent market share in Germany.
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  • Audio

    Audio

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Some carmakers fly journalists to southern Spain or Sardinia to take their latest models out for a spin. Opel’s latest debut was sedate by comparison. The German company chose the low-lying Taunus mountains in the German state of Hesse – almost in view of its main factory in Rüsselheim – to present its latest Opel Corsa. The model accounts for a good quarter of company sales.

Five years after being taken over by the Canadian supplier Magna and still under the wings of General Motors, the Opel brand – with a streak of lighting in its logo – is fighting its way back to solid growth.

“Sales for September rose in 14 European countries,” said Thomas Neumann, the chief executive of Opel, at a recent auto show in Paris. In Spain, traditionally a strong market for the brand, sales were up 40 percent from the same month last year. Mr. Neumann also reported that business is good in Germany and Great Britain.

The successor of the Corsa, which just came out, even made it to fourth position in German vehicle registrations. That gave Corsa an edge over its eternal competitor, the VW Polo.

“In coming months, we will most likely have to get used to stagnation at last year’s historically low level.”

Peter Fuss, Car industry expert for the consulting firm EY

But it seems like the stream of good news may soon come to an end. The European-wide recovery of the auto industry has been slowing since the summer.

“In coming months, we will most likely have to get used to stagnation at last year’s historically low level,” warned Peter Fuss, an expert on the car industry forthe consulting firm EY, formerly called Ernst and Young. In 2013, European sales dipped to 12 million new vehicles.

This will certainly have an impact on Opel and the rest of the car industry in Germany. Experts are predicting that the Europe’s largest car market  will not exceed the industry’s magic number of 3 million vehicles in 2015. Willi Diez of the auto industry institute in Nürtingen predicts a decline to 2.9 million new cars.

For Opel, this means price wars will only heat up. New models, like the new Corsa, will be of some help. The company is also well-represented in the small car market with its Adam and Karl models – the latter is scheduled for next year.

Mark Adams, head designer at General Motors Europe, said Opel’s offerings are “stronger than ever before,” especially in compact and mini-cars, where competition is extreme.

“ I’m far from as pessimistic as many of the experts in Germany.”

Thomas Neumann, chief executive of Opel

The Czech carmaker Skoda has just revamped its Fabia supermini model. And French-based Renault introduced a completely revamped Twingo, which is similar to the four-door Smart from Daimler. Volkswagen has modernized Corsa’s major competitor, the Polo.

The race in this class, where customers have little brand loyalty, will be decided by price. Next year in Europe, the auto industry will go “back to a state of war,” predicts Jose Asumendi, an analyst at JP Morgan Cazenove. Even those companies that sell enough cars will have to get used to shrinking profit margins.

Opel will also be dealt another setback. At the beginning of the year, the car manufacturer was awarded the existing business in Russia, which General Motors transferred from its Asian subsidiary. In 2013, Russia was still the third-largest market after Germany and Great Britain, this year sales there have declined by 12 percent.

“Sales could drop even further,” said Mr. Neumann, Opel’s chief executive. Last month, the company replaced management at the factory in St. Petersburg and production was reduced to a single shift. Severance packages are being offered.

In spite of the difficult environment, Mr. Neumann is steadfast in his determination to bring the car manufacturer back into the black in 2016. Last year, the company lost €623 million, or about $794 million. He points out that the European market is still growing, even if only by 2 percent. “And in Germany,” he said, “I’m far from as pessimistic as many of the experts are.”

He is still far from a market share of 10 percent in Germany, which has long been a company goal. But the 7.33 percent share in September is some cause for encouragement. It’s the most for Opel in years.

 

Christian Schnell has been working at Handelsblatt since 1999, covering capital markets and IPOs. He is currently specializing in the automotive industry. To contact the author: schnell@handelsblatt.com.

 

 

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