Bernstein Research Puts GM’s Opel-Vauxhall On Deathwatch
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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.
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Bernstein Research and Max Warburton have a dismal prediction record so far and this is just another highly speculative, inaccurate doomsday projection in the same vain.
GM gives up Europe.
Overall sales in Europe drops as forecasted.
VW takes over most of the sales.
VW becomes more profitable because they can raise prices due to less competition.
VW worldwide profits go even higher than they are today (very profitable company!)
Due to all this money they put it into developing new vehicles.
New VW vehicles are ultra competitive worldwide.
VW sales go up worldwide.
VW becomes #1 in sales and profits.
Profits drop significantly at GM.
Just saying.
So your saying Volkswagen is the new Apple?
Spoke with the owner of a new VW Beetle yesterday. I asked “…you realize what it’s going to cost when something fails on that thing?” An older woman, she responded “I don’t worry about that. Never drive them beyond the warranty before buying another one …… It’s cheaper that way.” I guess perception is everything, and a car with some style really helps. When I got in to take a look to my surprise I found a stick. She said it’s more fun to drive.
Would it cost any more to fix than a comparable Chevy?
Oh absolutely, at least it would in private repair shops, in my area anything with a german name costs twice as much to fix than a Chevy.
I’d take a factor of two any day. My experience has been 3X. And you’d be lucky to find a private repair shop for a lot of problems.
It’s baffling to me why the domestic companies can’t take advantage of this sort of thing by making the kinds of products that the Germans produce. The Germans either know how to hide things well, or we are idiots.
@VeranoHatch I’m not sure that’s entirely accurate. Post-warranty repair costs can be broken down by 1) labor and 2) parts.
With the exception of complicated transmissions (DSG) or some other unique components, then VW parts are comparable in price to those of Ford and GM.
That leaves us with the hourly labor expense; in my experience, VW dealerships bill out about the same per man hour as do Chevy (Saturn) and Ford establishments. Obviously everyone’s experience is different, but that has been my observation over the last few months (helping a friend fix a Jetta and another change out the tranny on a Cobalt).
Now, when it comes to Audi, BMW, and MBZ dealerships compared to those of mainstream GM (Chevy/GMC) and Ford, the hourly rate is definitely higher for the Germans… but that’s a whole different topic.
Here in France, chevrolet repair shop are very expensive, about 70 euro 1 hour labour, and spare parts MADE IN KOREA too expensive
Similar situation to here in the UK where quite a few Chevrolet dealers have the franchise tacked on to Vauxhall garages and as a result there is no discounted price for having a Chevrolet serviced compared to a Vauxhall. Those dealers that are sole Chevrolet franchises are normally little backstreet outfits with little or no proper showroom facilities.
“Warburton believes that GM may resort to only selling Chevrolets in Europe” Wow they really have got a sense of humour after all!! ITS NEVER GOING TO HAPPEN
David — what’s “never going to happen?”
GM selling just Chevrolets in Europe
Never is a long time. Do you think GM will continue selling Opels if it continues to be highly unprofitable?
David, i agree 100% with u, same situation in France, the most of car brands have fix price for annual oil change and service,CHevrolet no!! and believe me is crazy expensive !my dealer ask me 250 euro!!!, one other dealer 320 euro!!!, for the same service!. A friend of mine pay 230 euro to Audi for the annual service!,
If Opel would be an independent company, not a part of GM, Opel might end in bancruptcy soon. But it is not an independent company, but part of GM
In 2011, GME (GM Europe) stood for 19.2% of worldwide vehicle sales of GM, in 2010 for 19.8%, 1.735 million of 9.026 and 1.633 million of 8.353 million units.
I estimate that about one tenth of those European sales are Chevrolets imported from Korea (sucessor of Daewoo).
Without those European sales, GM would fall back to third place in the rankings of car industry coporations, after VW and Toyota, and then might soon be overtaken by Hyundai.
I do believe the assertions of the GM management that they do not want to give up the European market, even if that market is shrinking.
Opel are already taking action to deal with losses so the red ink is not likely to continue for an extended time frame. GM already know Chevrolet are a non entity in Europe and that is not likely to change in any sensible time frame. In Chevrolet is not really a major global brand at all, its main strength is in North and South America, it is no great automotive force anywhere else. So the conclusion that GM will pull out of Europe and just sell Chevrolets is a no go. Talking specifically about the UK the situation is even worse, Chevrolet are a complete non entity.
David — we’ll see if GM’s plan for Opel will actually work. But don’t discount the focus given to the Chevrolet brand by GM as a whole; the fact that Chevy’s previously-uncompetitive product lineup in Europe made it a “non-entity” (in Europe) is a reality of the past — as the current and upcoming generation of products will make those who have never considered the brand’s offerings give them a second (or first) look. If you want to see how fast the tide can turn, just look to Kia and Hyundai on a global scale.
“So the conclusion that GM will pull out of Europe and just sell Chevrolets is a no go. Talking specifically about the UK the situation is even worse, Chevrolet are a complete non entity.”
If Opel continues to lose money by the boatload through 2015, and if unions are uncooperative, then you can bet your arse GM will drop it faster than a sinking ship drops baggage. Perhaps Chevrolet won’t have the volume that Opel has, but at least it can be profitable on a smaller scale. How’s that for a no-go 😉
GM, Renault, Ford and VW will survive. Peugeot Citroen will die.
In a completely deregulated environment I think you would be right Rocky but the French are very protective, they have already underwritten credit for PSA and I think if push came to shove they would semi nationalise them in the same way they did to Renault a long time ago.
French love nationalized industries. 100% right.
Alex — I don’t doubt the focus GM has on Chevrolet what I am saying it is wasted in Europe. Unfortunately even with their current range they are a non-entity because in no sector are they anywhere near top competitiveness and unlike Kia and Hyundai they don’t even have a major price advantage with rivals to rely on. In addition much of the dealer network relies on Opel dealers in mainland Europe and Vauxhall in the UK and when the 2 ranges are side by side the shortcomings of Chevrolet become even more apparent. Part of the issue is also the brand – Chevrolet has no history and no meaning in Europe, rightly or wrongly they are still perceived as a re badged Daewoo. Be under no illusions Alex Chevrolet is going nowhere in Europe and I am far from convinced they are profitable with what they are doing now, you have only to look at sales numbers compared to advertising budgets (ie. The Manchester United deal for $550m!!!!!)
“If Opel continues to lose money by the boatload through 2015, and if unions are uncooperative, then you can bet your arse GM will drop it faster than a sinking ship drops baggage”
So what happens if Chevrolet continue to be about as popular as a pork pie at a bar mitzvah?
“Be under no illusions Alex Chevrolet is going nowhere in Europe”…
In the present it may be a non-entity. Let’s set a timer and see what happens in half a decade.
Opel has a lot of problem in europe also because for years they have sold cars with a very bad reliability.Today the situation is improved, but in the head of people there is always this bad immage.
There is also a problem that Opel has never solved a catastrophic after sales service, if the car has a problem it is always the fault of the customer, even if the car is under warranty they pretend not find the problem …..
Chevrolet after sales service is even worse than that of Opel, most of the time they are multi-brand garages and we must pray that the car Have No problems!, Prove is the failure of the early 2.0 150 hp diesel engine due to brokens broken rocker rollers, approaching 50 to 100.000 km , causing the car to make a loud bang & stop, with very expensive engine repair, GM know very well this problem did not Any recall!.
Why? Because here in europe we have-nots class action or lemon law so GM can do wath he want, they dont care about poor engine reliability Because if u have a problem is YOUR PROBLEM and u must pay!
I’d like to add two cents to this discussion, being:
GM will never drop Opel as their research centers in Europe are very valuable to GM and Buick in both the US and China are no more than rebadged Opels. Both the Regal/Insignia and the Verano/Astra have fully been developed by the European branch of GM.