General Motors Co. (GM) and PSA Peugeot Citroen (UG) have something in common: They both lose money in Europe. The issues they face may not be fixed by teaming up.
The two carmakers are in talks about forming an alliance to develop engines and build vehicles together in Europe, a person familiar with the situation said yesterday. A deal between the two automakers could link the 11 factories of GM’s Opel unit with PSA’s 12 European manufacturing plants.
Some analysts, including Max Warburton at Sanford C. Bernstein in London, are skeptical that the alliance will make much difference in the companies’ outlooks.
“Two wrongs don’t make a right,” he said. “PSA and Opel can’t restructure independently. We see no reason why putting PSA and Opel together would speed up the process of plant closures, as both have excess capacity.”
The companies have failed to end losses in Europe after extensive cost-cutting programs in recent years. The prospects for a turnaround aren’t improving with auto demand in the region poised to drop for the fifth straight year in 2012 as the sovereign debt crisis unsettles consumers.
Political interference and strong unions have hampered both companies from shutting factories and laying off workers to rein in costs. PSA is projected to use just 62 percent of its European capacity this year, compared with 74 percent at Opel, according to LMC Automotive in Oxford, England.
Carmakers risk losses when they use less than 90 percent of their capacity, said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg- Essen.
Cutting Investment
“We routinely talk with others in the industry, but have no comment beyond that,” Klaus-Peter Martin, a GM spokesman, said yesterday. Peugeot spokesman Jonathan Goodman reiterated comments from Feb. 21 that the carmaker was in discussions on possible partnerships, without saying with whom.
Peugeot, Europe’s second-largest carmaker, last week announced plans to reduce investments and marketing spending as part of a goal of saving 1 billion euros, an increase from a previous 800 million euros. The steeper cuts come after the car- making division lost 92 million euros in 2011. The Paris-based manufacturer also aims to sell 1.5 billion euros in assets to reduce debt, which widened to 3.4 billion euros last year.
General Motors is planning more cost cuts for its unprofitable European unit after the last turnaround plan failed to end losses. The Detroit-based automaker’s Europe business, which is chiefly Opel and its U.K. sister brand Vauxhall, lost $747 million last year before interest and tax.
Shrinking Share
While that’s an improvement from $1.95 billion lost in 2010, GM had planned to break even in the region until November, when it pulled back the forecast as the European outlook worsened.
GM’s restructuring of its European operations may cost at least $1 billion, according to the average estimate of three analysts surveyed by Bloomberg last week.
The lack of distinctive models has eroded market share for the two groups. Peugeot’s share in Western Europe slumped to 12.6 percent in 2011 from 13.7 percent last year after its sales in the region fell 8.8 percent. Opel and Vauxhall’s share slipped to 7.3 percent from 7.4 percent. The GM brands controlled 12.6 percent of the market in 1993.
“From a U.K. perspective, Peugeot, Citroen and Vauxhall are probably the weakest major brands,” said Simon Empson, managing director of Broadspeed.com, a discount car website. “This is grasping at straws. What could you combine? They’re going after exactly the same customers.”
Potential Savings
Peugeot’s best-seller is the subcompact 207 line, which starts at 12,350 euros, and vies with Opel’s 11,825-euro Corsa. Opel’s 16,770-euro Astra compact, its top-seller, rivals Peugeot’s 17,050-euro 308 model.
Savings from a GM-Peugeot alliance may ultimately approach $2 billion to $3 billion for the Detroit automaker, according to an estimate by Morgan Stanley.
“Any restructuring of GM Europe would require cash resources from Detroit,” Adam Jonas, an analyst with Morgan Stanley, wrote as lead author in a note to investors. “We expect an alliance would help GM get more bang for its buck, and would not expect significant capital commitment over and above that required to initiate joint projects.”
GM could record savings by sharing vehicle platforms with Peugeot and tap into technology such as Peugeot’s diesel engines, Jonas wrote.
‘Who’s Going to Cut?’
The alliance possibilities cited by analysts are less far- reaching than the 1999 transaction in which Renault SA and Nissan Motor Co. bought stakes in each other. Robert Lutz, a former GM executive, said that year that Renault would be better off sinking $5.4 billion in the ocean rather than buying a stake in Nissan.
Lutz by 2005 had changed his mind, citing “the personality, drive, firm will and daring of Carlos Ghosn,” the CEO of both automakers.
The Renault-Nissan alliance is worldwide while a GM-Peugeot one would involve two money-losing European units.
“The problem of bringing together two generalists in the same region is who’s going to cut anything?” said Colin Couchman, a London-based analyst at IHS Automotive. “There’s massive crossover between the brands. They both have the same overcapacity problems and both have political interference.”
French Labor Minister Xavier Bertrand warned Peugeot Chief Executive Officer Philippe Varin against cutting jobs as a result of a deal with GM.
A deal would be good for Peugeot as long as it upholds “the long tradition of maintaining employment in France,” Bertrand said yesterday in an interview with the country’s Europe1 radio station. “It is evident that a group like PSA Peugeot, which has this tradition, has the responsibility of maintaining this tradition.”
French Elections
France’s government has taken an active role in protecting local jobs. President Nicolas Sarkozy, who’s running for re- election this year, summoned Varin on Nov. 17 to ask him to reconsider plans to cut as many as 6,800 jobs, including temporary staff employed by partners. The French carmaker last year distanced itself from a leaked proposal to close a French plant after the government described it as “unacceptable.”
German Chancellor Angela Merkel has also shielded German factories. She brokered the sale of Ruesselsheim, Germany-based Opel to protect jobs. The deal ultimately fell apart when GM backed out in November 2009 after exiting bankruptcy. A restructuring agreement stemming from then prohibits plant closures until 2014.
Backed by that agreement, Opel’s unions don’t feel threatened by a potential deal with Peugeot.
“It could be positive if we bring our respective strengths together,” said Rainer Einenkel, the head of the works council at Opel’s plant in Bochum, Germany. “I don’t see any competition with Peugeot because we build the more beautiful cars.”
Two wrongs don't make a right
Yesterday came the rumors that GM is in alliance talks with Peogeo over its European Opel operation. Both companies lose money in Europe, so has suddenly two wrongs started to make a right? Well, not according to Bloomberg:
GM on classic road to disaster by holding onto Opel
Here's a piece from Huffington Post by Peter Martindale:
General Motors on Classic Road to Disaster by Sentimentally Holding Onto A Loss-Making Division
Since 1999 General Motors has lost $15.6 milliard; that is a rough-average of $1,000 million a year. Three years ago the company looked at off-loading its European operation but due to political interference from politicians in Europe it was not able to conclude a deal. A year later, it sold its Saab subsidiary to Spyker, which has struggled with the burden, and was driven to bankruptcy in December just last year. Spyker was unable to raise necessary funding in these times of austerity in the Western World. It had therefore looked to China but there is a widespread recognition of a problem with the Chinese record of not respecting intellectual property. General Motors has a considerable amount of intellectual property on licence to Saab which Saab is totally reliant upon for success. Not surprisingly then, General Motors would not authorise involvements that would put their intellectual property at risk of dissemination.
If a willing buyer can be found for the General Motor's remaining European business in these increasingly harsh economic times, then General Motors would be doing well to sell. Obviously they cannot sell to an entity that would put the intellectual property at risk, and that rules out the most significant sources of liquidity currently available. The chance of finding a willing buyer, though, when there is such political interference from German vested interests, makes such prospects very slim. A new owner who views the Vauxhall-Opel business in its own right, rather than as an adjunct to another brand, could make a go of it: this would give the best hope to the company, let's hope a buyer is forthcoming.
The danger with GM restructuring its European operations is that, although the Ellesmere Port manufacturing plant in Britain was generally considered to be safe in any re-structuring, it is not anymore, and Luton certainly is not, and could easily be one of the plants to be closed if the company does not sell. Another, or two, plants in Europe would also be at risk immediately, and others in the future. General Motor's European operations in the last sixth of a century has had a disastrous cost on the company. General Motors has an eighty-five year record in Britain and Europe, and for much of that history was very successful, but that is the problem, sentimentality is over-ruling good business sense. So desperate is General Motors to retain market-share that it is clinging onto mere statistics that boost its grandiose appearance, rather than being smaller and more profitable. Although there are some circumstances where it is worth having loss-leaders, it is not sensible in an entire market place, on the scale in which General Motors is doing it, or for so many years. Whatever plants close now as a result of restructuring would be unlikely to arrest the losses and prevent the eventual inevitable further closures.
That General Motors is making a loss now is all the more worrying, in what could be considered the peace before the onslaught on competitiveness in the car manufacturing industry, as the Chinese are about to flood the European market with their cars, making General Motor's losses even greater.
If plants are closed as part of the restructuring plan currently under consideration, then there must be a political backlash. Any closure would mean permanent loss to the industry, and a further degradation of manufacturing in this country. The loss of a manufacturing plant to the British car making industry overall, would be disastrous as it would further erode the critical mass which makes the component supply industry viable, which in turn makes the British car manufacturing industry itself viable. This would, ironically, be at a time that the Government is promoting an initiative to strengthen the supplier industry, in order to keep both it and vehicle manufacturing viable. General Motors say they have kept the Government and the unions appraised of the restructuring plans, it will be shame upon such politicians if that includes downgrading any of General Motor's operations in the UK.
The problem is going to be the vested interests of German unions, politicians and industry, and the fact that the European Union is weak on fairness: all of Britain's industries have seen that there is not a level playing field in Europe; General Motor's ongoing losses now are clarion to that..
If General Motors does not sell to a suitable buyer then the chances are that in just a few years, Vauxhall Motors, one of the few remaining British car marques, will follow a long list of illustrious names, and will be no more.
General Motors on Classic Road to Disaster by Sentimentally Holding Onto A Loss-Making Division
Since 1999 General Motors has lost $15.6 milliard; that is a rough-average of $1,000 million a year. Three years ago the company looked at off-loading its European operation but due to political interference from politicians in Europe it was not able to conclude a deal. A year later, it sold its Saab subsidiary to Spyker, which has struggled with the burden, and was driven to bankruptcy in December just last year. Spyker was unable to raise necessary funding in these times of austerity in the Western World. It had therefore looked to China but there is a widespread recognition of a problem with the Chinese record of not respecting intellectual property. General Motors has a considerable amount of intellectual property on licence to Saab which Saab is totally reliant upon for success. Not surprisingly then, General Motors would not authorise involvements that would put their intellectual property at risk of dissemination.
If a willing buyer can be found for the General Motor's remaining European business in these increasingly harsh economic times, then General Motors would be doing well to sell. Obviously they cannot sell to an entity that would put the intellectual property at risk, and that rules out the most significant sources of liquidity currently available. The chance of finding a willing buyer, though, when there is such political interference from German vested interests, makes such prospects very slim. A new owner who views the Vauxhall-Opel business in its own right, rather than as an adjunct to another brand, could make a go of it: this would give the best hope to the company, let's hope a buyer is forthcoming.
The danger with GM restructuring its European operations is that, although the Ellesmere Port manufacturing plant in Britain was generally considered to be safe in any re-structuring, it is not anymore, and Luton certainly is not, and could easily be one of the plants to be closed if the company does not sell. Another, or two, plants in Europe would also be at risk immediately, and others in the future. General Motor's European operations in the last sixth of a century has had a disastrous cost on the company. General Motors has an eighty-five year record in Britain and Europe, and for much of that history was very successful, but that is the problem, sentimentality is over-ruling good business sense. So desperate is General Motors to retain market-share that it is clinging onto mere statistics that boost its grandiose appearance, rather than being smaller and more profitable. Although there are some circumstances where it is worth having loss-leaders, it is not sensible in an entire market place, on the scale in which General Motors is doing it, or for so many years. Whatever plants close now as a result of restructuring would be unlikely to arrest the losses and prevent the eventual inevitable further closures.
That General Motors is making a loss now is all the more worrying, in what could be considered the peace before the onslaught on competitiveness in the car manufacturing industry, as the Chinese are about to flood the European market with their cars, making General Motor's losses even greater.
If plants are closed as part of the restructuring plan currently under consideration, then there must be a political backlash. Any closure would mean permanent loss to the industry, and a further degradation of manufacturing in this country. The loss of a manufacturing plant to the British car making industry overall, would be disastrous as it would further erode the critical mass which makes the component supply industry viable, which in turn makes the British car manufacturing industry itself viable. This would, ironically, be at a time that the Government is promoting an initiative to strengthen the supplier industry, in order to keep both it and vehicle manufacturing viable. General Motors say they have kept the Government and the unions appraised of the restructuring plans, it will be shame upon such politicians if that includes downgrading any of General Motor's operations in the UK.
The problem is going to be the vested interests of German unions, politicians and industry, and the fact that the European Union is weak on fairness: all of Britain's industries have seen that there is not a level playing field in Europe; General Motor's ongoing losses now are clarion to that..
If General Motors does not sell to a suitable buyer then the chances are that in just a few years, Vauxhall Motors, one of the few remaining British car marques, will follow a long list of illustrious names, and will be no more.
Opel makes huge loss in 2011
The numbers are in and show that Opel made a huge loss in 2011.
Retuers report that for the year, Opel reported a loss of $700 million. GM originally aimed for its Opel unit to break even but abandoned that target in November as demand there deteriorated.
"We clearly have work to do in Europe," GM Chief Financial Officer Dan Ammann told reporters. Continuing saying that GM has not gone far enough in cutting costs at Opel, but he declined to provide a 2012 financial forecast.
As reported earlier, this was Opel's twelth consecutive year of loss.
Unfortunately for GM and Opel, cost cutting in Europe will take time. To cut costs negotations with the unons must be held and that will take a matter of months and not weeks reports Reuters.
"I expect this not to happen in a month or so, rather than in a couple of months, that's at least how I see the timetable," Opel Chief Executive Karl-Friedrich Stracke told reporters on Thursday during a conference call.
Stracke said he aimed to raise the utilization of Opel's vehicle production capacity to a 100 percent on a three shift basis. At the time being only two thirds of the capacity is being utlized.
He declined to comment on whether he intended to achieve the increase either by taking capacity out or shifting overseas production of cars sold in Europe under the Chevrolets or Opel to some of his underutilized factories.
"Our plants have been anticipated to be utilized three shifts in the future and utilized at 100 percent," he said.
The Opel workers are clearly aiming at the latter. But first of all they want to stop the import of Asian built Opel cars.
"In order to fully use the capacity of the European plants, the planned import of Opel/Vauxhall vehicles from other global regions to Europe needs to be reconsidered," said the Chairman of the German Group Works Council Wolfgang Schaefer-Klug according to Reuters.
In other words, the negotaitons between the Opel management and the unions will be tough. And as usual the cost cuts will probably not be tough enough and Opel will continue to strive to achieve profits.
The question is this: For how long will the American taxpayers be happy paying the salaries of the German Opel workers?
Retuers report that for the year, Opel reported a loss of $700 million. GM originally aimed for its Opel unit to break even but abandoned that target in November as demand there deteriorated.
"We clearly have work to do in Europe," GM Chief Financial Officer Dan Ammann told reporters. Continuing saying that GM has not gone far enough in cutting costs at Opel, but he declined to provide a 2012 financial forecast.
As reported earlier, this was Opel's twelth consecutive year of loss.
Unfortunately for GM and Opel, cost cutting in Europe will take time. To cut costs negotations with the unons must be held and that will take a matter of months and not weeks reports Reuters.
"I expect this not to happen in a month or so, rather than in a couple of months, that's at least how I see the timetable," Opel Chief Executive Karl-Friedrich Stracke told reporters on Thursday during a conference call.
Stracke said he aimed to raise the utilization of Opel's vehicle production capacity to a 100 percent on a three shift basis. At the time being only two thirds of the capacity is being utlized.
He declined to comment on whether he intended to achieve the increase either by taking capacity out or shifting overseas production of cars sold in Europe under the Chevrolets or Opel to some of his underutilized factories.
"Our plants have been anticipated to be utilized three shifts in the future and utilized at 100 percent," he said.
The Opel workers are clearly aiming at the latter. But first of all they want to stop the import of Asian built Opel cars.
"In order to fully use the capacity of the European plants, the planned import of Opel/Vauxhall vehicles from other global regions to Europe needs to be reconsidered," said the Chairman of the German Group Works Council Wolfgang Schaefer-Klug according to Reuters.
In other words, the negotaitons between the Opel management and the unions will be tough. And as usual the cost cuts will probably not be tough enough and Opel will continue to strive to achieve profits.
The question is this: For how long will the American taxpayers be happy paying the salaries of the German Opel workers?
Opel is a mess
On Thursday General Motors will publish its fourth quarter results and reveal just how much its German subsidiary Adam Opel has lost in 2011. The loss is expected to be EUR 1 billion.
"It's a mess," said Michelle Krebs, a senior analyst at Edmunds.com. "GM's back is against the wall on Opel. It just is going to have to do something there. So I think we will see something coming in that regard."
The Opel unit has suffered from nearly $14 billion in losses since 1999 and GM has lost its patience. And the US Government surely is upset that GM did not sell Opel as intended back in 2009.
"They're very concerned about it," Krebs said. "The whole European situation. The (euro zone) debt crisis is lowering car sales from last year to this year. Opel has always been a problem for GM. And there's a huge problem in Europe overall with the total industry. There's too much factory capacity for the demand. It's a very mature market. The market's not going to grow, and yet they've got all this capacity."
What makes matters worse for Opel is that GM is doing well and making money in all other markets around the world.
"GM had a good year in the U.S.," Krebs said. "Lower incentives, improved sales volume, increased market share, those are all a winning formula."
"It's a mess," said Michelle Krebs, a senior analyst at Edmunds.com. "GM's back is against the wall on Opel. It just is going to have to do something there. So I think we will see something coming in that regard."
The Opel unit has suffered from nearly $14 billion in losses since 1999 and GM has lost its patience. And the US Government surely is upset that GM did not sell Opel as intended back in 2009.
"They're very concerned about it," Krebs said. "The whole European situation. The (euro zone) debt crisis is lowering car sales from last year to this year. Opel has always been a problem for GM. And there's a huge problem in Europe overall with the total industry. There's too much factory capacity for the demand. It's a very mature market. The market's not going to grow, and yet they've got all this capacity."
What makes matters worse for Opel is that GM is doing well and making money in all other markets around the world.
"GM had a good year in the U.S.," Krebs said. "Lower incentives, improved sales volume, increased market share, those are all a winning formula."
Opel on a twelve year streak of losing money
According to German newspaper Handelsblatt, General Motors German unit Adam Opel can look back at twelve years of deficit. And now Opel is desperate to cut cost. First out the plant in Bochum.
GM second in command, Stephen Girsky,says that GM is desperate to turn the European operation around "The corporate headquarters is under great pressure to return to profits in Europe."
But Opel has not made profits for the last twelve years. Since 1999, the subsidiary has contributed to the GM's losses with $11 billion. Mainly because the market share of Opel has more than halved since 1999 and the manufacturing plants are not fully utilized. According to internal calculations, the utilization is currently only at three quarters and could fall further.
And now the plant in Bochum is under treath of being shut down.
"40,000 jobs in our county is attached to the plant," said Helmut Diegel, Executive Director of Industry and Commerce in Middle Ruhr.
To remedy the fincial situation and low sales, Opel is desperate to enter new untapped markets like China, but it is doubtful that GM will give Opel the green light. Reason being that GM is already making tons of money by selling Buick and Chervrolet in China.
Another example of GM's focus on the American brands as opposed to Opel, is the recent appointment of Alan Visser in charge of Chevrolet's global marketing. GM said that Visser will focus especially on markets outside North and South America. This means that Opel will need to find a new head of sales, marketing and aftersales.
German auto expert Dudenhöffer said the following about Opel's situation: "The Americans have lost money in Europe for more than a decade. "The bottom line is that the outlook for Opel is scary for the employees. You can not rule anything out."
GM second in command, Stephen Girsky,says that GM is desperate to turn the European operation around "The corporate headquarters is under great pressure to return to profits in Europe."
But Opel has not made profits for the last twelve years. Since 1999, the subsidiary has contributed to the GM's losses with $11 billion. Mainly because the market share of Opel has more than halved since 1999 and the manufacturing plants are not fully utilized. According to internal calculations, the utilization is currently only at three quarters and could fall further.
And now the plant in Bochum is under treath of being shut down.
"40,000 jobs in our county is attached to the plant," said Helmut Diegel, Executive Director of Industry and Commerce in Middle Ruhr.
To remedy the fincial situation and low sales, Opel is desperate to enter new untapped markets like China, but it is doubtful that GM will give Opel the green light. Reason being that GM is already making tons of money by selling Buick and Chervrolet in China.
Another example of GM's focus on the American brands as opposed to Opel, is the recent appointment of Alan Visser in charge of Chevrolet's global marketing. GM said that Visser will focus especially on markets outside North and South America. This means that Opel will need to find a new head of sales, marketing and aftersales.
German auto expert Dudenhöffer said the following about Opel's situation: "The Americans have lost money in Europe for more than a decade. "The bottom line is that the outlook for Opel is scary for the employees. You can not rule anything out."
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