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2, 2017 06:01 CET
Closing plants and laying off workers would be the quickest and easiest way to fix Opel problems, but PSA Group CEO Carlos Tavares wants to avoid that. When asked how he plans to end decades of losses at Opel and its UK sister brand Vauxhall without taking those steps he said, "The only honest answer is to say, if we increase the level of performance [at Opel] then we are safe." Tavares was speaking to reporters in Geneva last month.
The CEO also does not plan on micromanaging Opel as it restructures, instead he wants PSA to help the automaker's team, led by Opel Group CEO Karl-Thomas Neumann, to reach the necessary benchmarks. "[We are not entering] Opel with a precooked plan," Tavares said. "We intend to create a framework within which -- with the appropriate methodologies -- the Opel and Vauxhall employees and management can build their own turnaround plan that they will hopefully successfully implement, and they will be the winners of this turnaround." Opel will get to make its own decisions regarding brand management, product, design and pricing. "But that does not mean that we are not going to have conversations about these topics," Tavares said.
'High risk'
Analysts see Tavares' turnaround ambitions for Opel, which has lost a combined $9 billion since 2009, as challenging but achievable. "PSA's planned takeover of Opel is massively high risk, enormously complex and involves taking on two very weak brands, but we believe it has a significant chance of success," said Max Warburton, a London-based auto analyst at Sanford C. Bernstein. "Opel margins can rise toward PSA's levels in a few years." PSA's automotive operating profit widened to 6 percent last year from 5 percent in 2015.
Stuart Pearson, chief financial analyst at Exane BNP Paribas in London, noted that "PSA gave a very confident account of how Opel can benefit from applying PSA's manufacturing and cash management best practices," adding that the next Opel Corsa, expected in 2019, will be built on a PSA platform. "Engineers have been working together on it for the past six months and this can save on r&d starting today."
In Pearson's estimation, EU sourcing went from less than 50 percent in Opel-only vehicles to more than 90 percent on models jointly produced with PSA such as the Opel/Vauxhall Crossland X and Grandland X. "Jointly produced vehicles are profitable projects," Pearson added.
Arndt Ellinghorst, a financial analyst at ISI Evercore in London, believes that PSA will be a better parent to Opel than GM because it has a superior understanding of the dynamics of operating in Europe. He's also positive about the deal because the two automakers already work together.
Turnaround success
Tavares' success with turnarounds is well documented. He reduced PSA's breakeven point to 1.6 million units in 2015 from 2.6 million in 2013. He also swung the French automaker to a 1.2 billion operating profit from a 1.3 billion loss in just 24 months. He plans to follow a similar playbook with his new acquisitions. "We want to help Opel and Vauxhall become stronger as quickly as we can by sharing all the best practices, by giving them the appropriate benchmarks and making sure that they can win in the same way we did [at PSA]," Tavares said.
During PSA's revival Tavares habitually underpromised and overdelivered. He appears to be planning a similar approach with Opel's restructuring by setting achievable targets. "With a 2 percent, operating margin target for Opel by 2020 and 6 percent by 2026, we feel the targets are achievable and likely conservative," ISI's Ellinghorst said. He added that a change in accounting standards could provide a tailwind to Opel. "Under International Financial Reporting Standards Opel could have achieved a positive operating margin of around 1 percent to 1.5 percent in 2016," he said. GM, however, applies U.S. Generally Accepted Accounting Principles, under which it treats r&d expenditure as a cost with no future benefit and expenses it fully. This was one reason why Opel last year reported a 1.3 percent operating loss.
German engineering
When Tavares takes stock of the strengths that the combined automaker has, r&d it high on the list. "We are going to be an enlarged company that will use all its r&d resources in the most efficient way for our five brands," he said. "There are a lot of things that we can do." Examples of this are starting to be seen as Opel rolls out a trio of models that were jointly developed with PSA as part of their four-year partnership. Tavares says those three models will represent 20 percent of Opel’s volume. "And those three models, which already carry PSA's intellectual property, could be exported out of Europe," he said. At the same time, he acknowledged that Opel's influence on the end product will remain strong because the automaker's cars will continue to be "engineered by the Opel people" and that "[design] is up to the brand CEOs to decide."
The dust has settled on the auto industry's deal of the year, now the hard work starts for the people who will try to make PSA Group's purchase of Opel/Vauxhall from General Motors a success.
There will be shock waves at the France- and Germany-based companies and in the overall European automotive sector as PSA-Opel makes big changes. These include slimming down a regional production footprint that has risen to 15 vehicle assembly plants from nine through the deal; reducing a European workforce that has grown to 125,000 employees; shuffling executives to find the correct mix of French and German influence at Europe’s second-largest automaker after Volkswagen Group; and addressing the overlap between the Peugeot, Citroen and Opel/Vauxhall brands.
To achieve PSA's goal of returning Opel to profit with an operating margin of 2 percent within three years and 6 percent by 2026, industry experts predict that up to three PSA-Opel plants will close and 5,000 workers will be laid off. In addition, one of the combined group's four volume brands may eventually shut down, some analysts say. These moves are considered overdue adjustments in a saturated European market plagued with chronic production overcapacity. Europe's need for consolidation is one reason why many auto bosses like the deal.
Size matters
"I have always been an advocate of consolidation," Renault-Nissan CEO Carlos Ghosn said at the Geneva auto show last month. Ghosn, who was Tavares' boss at Renault until Tavares switched to PSA three years ago, said size matters, which why his alliance added struggling Mitsubishi Motors last autumn. Scale alone, however, is useless if companies do not share parts and technologies on a massive scale, Ghosn said, although realizing this goal is "something that takes time. Believe me." Ghosn knows this because a frequent criticism of the Renault-Nissan alliance is that after nearly 20 years together the companies still don't share enough parts and plants.
Like Ghosn, Fiat Chrysler Automobiles CEO Sergio Marchionne had been a strong supporter of consolidation. In Geneva he said that the PSA-Opel combination "threatens VW most, creating a No. 2 on its heels." VW Group, which has been Europe's largest automaker for decades and rose to No. 1 in global sales last year, rebuffed Marchionne's concerns. "We took Opel and PSA seriously as competitors in the past. These were two brands and now they are under a single roof. I don't believe that a great deal will change," VW CEO Matthias Muller told Reuters.
Purchasing and pricing
Volvo CEO Hakan Samuelsson said the deal makes sense because volume brands such as Peugeot and Opel, with much of their labor based in high-cost European countries, can boost their profitability either by increasing their economies of scale and volumes or by moving upscale.
Opel has tried to move upmarket with mixed results. "The cars are very, very good but they still have to price them according to what the market will accept," he told Automotive News Europe during a roundtable discussion in Geneva.
Since the deal increases PSA's European sales by more than 1 million units, it will have greater purchasing power, said Aston Martin CEO Andy Palmer, who used to work for Tavares when both were at Nissan. Another benefit Palmer sees is that PSA will be protected against a hard Brexit or a weak pound, saying that "one of the two is inevitable" in the UK, which represents about 20 percent of overall European sales, but 30 percent of profits in the region. At the same time, Palmer predicts the combined company will find it challenging to establish a specific place in the market for each brand. "This is much more complicated than saying that Peugeot in French and Opel German," he told Automotive News Europe.
On the plus side, pricing in Europe is expected to benefit because of the PSA-Opel deal, Toyota Chief Competitive Officer Didier Leroy said. He believes that the price discipline that PSA has shown since Tavares rescued the French automaker from near collapse will be extended to Opel. This could provide some relief in low-margin sales channels such as daily rentals, where the German automaker had been very aggressive, especially in its home market.
Meanwhile, executives such as Ford of Europe Chief Operating Officer Steven Armstrong question whether the PSA-Opel deal qualifies as a true consolidation, although Armstrong is sure about one thing. "There will be future consolidation, be it in the form of alliances, cooperations or somebody acquiring somebody else," he said. While Ford's European business is making billions of dollars, GM failed for decades to make a profit with Opel/Vauxhall. One of the big differences between the brands was that Ford was more aggressive at shrinking its European footprint when demand diminished. "We started our restructuring ahead of many of the other brands and are benefiting from it now, proving that you can be a volume player in Europe and be profitable," Armstrong said. "We earned $1.2 billion last year in Europe."
Automakers that don't have a solid balance sheet could be in jeopardy because they will need cash to invest in expensive technologies that will make their future vehicles greener, more connected and capable of driving themselves. "The investments that are required are increasing dramatically," said former Nissan Europe sales boss Guillaume Cartier, who started in a global sales role at Mitsubishi this month. "Being big is a way to secure your future."
Arndt Ellinghorst, a financial analyst at Evercore ISI in London, called the PSA-Opel deal "clean and financially sound." He added, however, that reaching the Tavares' earnings goals while also achieving 1.7 billion euros in joint cost savings will only happen if Opel/Vauxhall's management team is willing to follow the advice it gets from its new owner and if the European car market remains strong.
Under General Motors' ownership, Opel/Vauxhall has been able to avoid the fate of former GM sibling Saab, which vanished after the brand was starved of product, by managing to compete in most segments. This was done despite its virtual lack of SUVs, which is ironic for a U.S.-owned brand.
With the notable exception of the Astra and Insignia, whose compact and midsize sedan architectures were developed at Opel's ITEZ engineering center in Ruesselsheim, Germany, the rest of its lineup was cobbled together through a hodgepodge of different platforms. The Corsa subcompact, its biggest seller, is still built off the same Fiat platform used by its predecessor, as is the Adam minicar. Other cars such as the Agila minivan and Antara SUV were badge-engineered copies of the Suzuki Splash and Chevrolet Captiva, respectively, and were discontinued because of poor sales.
Meanwhile, Europe's profitable commercial van segment was neglected until Opel CEO Karl-Thomas Neumann's arrival in 2013. He promptly assigned Steffen Raschig to improve the business, which he did. Pairing with PSA, which like Opel is very dependent on European sales, offers the opportunity to develop a full line of models that are tailored to local tastes and market requirements from the start, rather than constantly being forced into clumsy compromises.
Emissions struggles
A critical benefit for Opel would be PSA's expertise in developing small, fuel-efficient cars. A consistent criticism of Opel's lineup was the relatively high curb weight of its models, which are often 100 kg to 200 kg heavier than competitors' model. As a result, the company's EU fleet emissions trailed premium carmakers Daimler and BMW in 2015, the most recent year for which data is available. By comparison Peugeot and Citroen lead the pack with the lowest emissions.
Negative aspects of the deal largely revolve around fears of a mass cull of jobs and plants as PSA will have little need of more western European manufacturing capacity, especially in Germany, where Opel's Eisenach car factory or its Kaiserslautern powertrain plant could be closed once employment guarantees expire. Any closure could spark strikes across Opel's German operations.
The corporate governance track record for Franco-German corporations also has not been encouraging. Although the two countries are considered to be the engines behind European integration, France follows an aggressively interventionist industrial policy that protects domestic interests even at the cost of its closest ally. Critics say this has much to do with its economic model, where an elite control both private enterprise and state bureaucracy and the borders between the two are heavily blurred.
Airbus is perhaps the best example. The airplane maker is a prestige project between the two countries but tensions on the board simmered for years, prompting Daimler to remain a strategic shareholder longer than it would have liked at the behest of German Chancellor Angela Merkel. The German half of drugmaker Aventis steadily lost influence after Nicolas Sarkozy, then still an up-and-coming economics minister, played an instrumental role in creating a French champion, Sanofi-Aventis, out of a European one. These examples point to potential problems for an Opel under French control.
3 articoli sul matrimonio PSA-Opel scritti dai redattori di automotive news, non c'è dubbio che l'acquisizione del marchio tedesco da parte dei francesi sia la storia automotive dell'anno con la possibilità di cambiare pesantemente lo scenario europeo.
Imho stranamente gli analisti del settore non sono così negativi, se Opel utilizzasse il sistema contabile europeo ( e lo farà a fine anno quando sarà parte di PSA) sarebbe già in attivo, Gm avrebbe continuato a massacrare il marchio, nel lungo termine PSA potrebbe lanciare Opel in Brasile, Russia e Cina dove i marchi Citroen e Peugeot stanno avendo enormi difficoltà.
Io rimango ancora abbastanza scettico, anche se Tavares riuscirà a realizzare un'integrazione rapida le vere sinergie non arriveranno prima del 2023, fino ad allora verrà bruciata cassa.
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