GM’s Opel–Vauxhall unit could be in deadly danger, according to a report by Bernstein Research analyst Max Warburton. The analyst stated that the weakest automotive firms in the troubled European market may require government help if things don’t turn around in the near future while, Volkswagen — which accounts for roughly 24 percent of market share in Western Europe — could grow its presence to about a third by 2020, given that present trends continue.
Warburton expects VW to make a “mild” profit in 2012, while remaining automakers — including Peugeot-Citroen, Fiat, Ford, and Opel — will share $8 billion worth of losses. Opel and GM partner Peugeot-Citroen will likely make up $2 billion each of the total $8 billion. Meanwhile, car sales in Western Europe will fall eight percent this year according to research from LMC Automotive; analysts expect a decline of roughly four percent in 2013, while a recovery seen prior to 2008 recession levels doesn’t seem likely.
“If current trends continue, some will be forced to retrench. Recapitalisations, state involvement and even nationalization may prolong the process,” Warburton said.
In fact, Peugeot recently received a bailout of sorts from the French government, with $9 billion of bonds issued by the country’s financing bank. In exchange, the government — along with union members — received a seat on the automaker’s board of directors. Peugeot, along with Renault, also received a smaller bailout of $3.8 billion each to assist the manufactures in weathering the recession while the government funded a cash-for-clunkers program. According to pundits, the bailout put both Peugeot and Renault at a long-term disadvantage, since the extra funds allowed them to ride out the storm without taking concrete measures to cut costs or make product more competitive; VW, however, did just that — and now seems to be reaping the benefits.
Extrapolated to 2020, Bernstein’s projections don’t paint Opel or Peugeot in a positive light: “We have modeled the exit of Opel, the slimming down of Fiat (already announced), a reduction in activities at Peugeot-Citroen (not announced but inevitable) and some further retrenchment by Ford and Renault. If VW picks up 50 per cent of the incremental share made available, it could have 33 per cent of the Western European market by 2020,” Warburton said.
VW’s desire to succeed in markets where it is currently weak, including France, Italy, and Spain, may lead weakening competitors to possible failure.
“[This could] drive other manufacturers close to the edge. Fiat, Renault and Peugeot-Citroen all have large gross cash balances to provide near-term protection, and Ford and GM-Opel have well capitalized U.S. parents. But the clock is ticking, the financial situation of these companies is not improving and in the next 24 months some will begin to run out of money. We see Peugeot-Citroen and Opel as most at risk of failure – or at least of being in need of government intervention,” Warburton said.
For its part, General Motors is taking steps to restructure Opel — which has been unprofitable for nearly a decade. GM has also announced that it expects the division to break even by 2015. Meanwhile, analysts have ridiculed GM’s decision to keep the loss-making division (as did yours truly), as it is having a negative impact on The General’s profitability, and is undoubtedly a factor in GM’s depressed stock price.
Warburton believes that GM may resort to only selling Chevrolets in Europe, while Fiat will be reduced to vehicles based on the 500, while moving Alfa Romeo and Maserati brands upmarket. At the same time, he expects Ford to curb its expectations of the new Mondeo (Fusion), Peugeot-Citroen to be reduced in size, and Renault will have to rethink its recent decision to move upmarket. All that is assuming that a breakup of the Euro-Zone won’t take place.
The GM Authority Take
As we like to say here at GM Authority, only time will tell.