For General Motors CEO Mary Barro, it was a matter of cutting the bleeders from the company’s balance sheet. So last year, she took the painful decision to sell off GM’s European operations, including Germany’s money-losing Opel and Britain’s Vauxhall brands to French carmaker PSA.
GM’s decision now looks prophetic. Handelsblatt has learned from supervisory board sources that Opel is likely to have racked up more than €1 billion in operational losses last year.
The sale to PSA cost Ms. Barro $5.4 billion in the third quarter last year, including $1.5 billion “related to pensions and other net charges” because of the separation of the companies, according to GM’s third quarter filing with the Securities and Exchange Commission.
But a look at the two share prices tells the real story: since last summer, GM stock has soared 30 percent, while PSA shares have fallen 18 percent. Clearly, more than just Opel has affected the firms’ oulook, because GM is now considered a leader in the race to produce electric vehicles.
“The company is in the basement.”
Opel in a strongly-worded statement denied the figure, calling Handelsblatt’s reporting “fake news,” citing accounting reasons to argue the number “doesn’t exist inside Opel/Vauxhall as it is not available.” This is technically true, as a switch from US to European accounting rules since the takeover means that PSA doesn’t have to separate out its Opel figures. PSA confirmed it will not be releasing a profit/loss for Opel when it publishes annual results. Two sources however said it is clear that PSA had to write off more than €1 billion.
Either way, PSA CEO Carlos Tavares may have miscalculated how quickly Opel could be turned around. The company has lost €19 billion in the last 20 years. “The company has not prepared for the future,” Mr. Tavares complained last November when he took control of Opel’s balance sheet and designed the company’s turnaround plan.
Analysts agree: “The company is in the basement,” said Stefan Bratzel, director of the Center of Automotive Management in Bergisch Gladbach, Germany, who expects the turnaround at Opel to take at least two years.
Opel has always been a car like the Buick in Europe. It is square and boxy and not very sexy. It was often purchased for corporate fleets because of low maintenance costs.
Opel introduced seven new models last year, which normally would boost sales. But at 940,000 vehicles, Opel sales actually declined 5 percent from the previous year. The firm’s top-selling Opel Astra was down even more, by 14 percent. For 2018, the company has just one new model to introduce, hardly an optimistic sign.
More worrying for Mr. Tavares is that PSA guaranteed Opel’s unionized workers that their jobs would be safe, at least until the end of 2018. If sales keep falling, Opel’s bloated German workforce could prove hard to sustain. In Britain, where job security is less rigid, PSA has already cut 400 jobs at Vauxhall’s Elsmere Port factory and just announced 250 more job losses, bringing the plant down to a single shift.
One focus is likely to be Opel’s technical development center in Rüsselheim, which employs 6,000 white collar workers. Since PSA already has a development center in France at work on electric cars, the Opel center seems a likely target for downsizing.
There are still 1,000 temporary workers at Opel factories who now face being cut because they are not full-time staff covered by the job guarantees. The company may move workers from the Opel plant in Gliwice, Poland to Germany as a temporary stopgap.
New rules on early retirement are also designed to bring about voluntary reductions in the size of the staff. About 3,500 senior employees could take advantage of the early retirement option, bringing a significant reduction in staff.
Opel is also cutting working hours for many unionized employees from 40 hours a week to 35 hours, the French industrial standard. But under German law, companies that keep employees on the staff at reduced hours rather than dismissing them, are entitled to get compensation from Germany’s Federal Employment agency.
Stefan Menzel is the managing editor of Handelsblatt’s website and closely follows the car industry, Tanja Kuchenbecker is a correspondent for Handelsblatt in France, and Charles Wallace is an editor for Handelsblatt Global in New York. To contact the authors: email@example.com, firstname.lastname@example.org and email@example.com.
This story was updated with Opel’s reaction on Tuesday at 1:30 pm local time.