How PSA Groupe Was Able To Turn Around Opel After GM
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Barely a year after GM sold Opel to French conglomerate PSA Groupe, the German automaker made an impressive financial turnaround, going from a multi-million-dollar loser, to making nearly $1 billion in profit, putting an end to decades of losses. Here’s how it did it.
Opel CEO Michael Lohscheller explained in an interview with Automotive News Europe that, to get Opel back to profitability, it had to first slim down its corporate ladder. He admits he had to cut the ranks of upper management by 25 percent.
“You have to clean the escalator from the top. After doing that, people realize this is serious,” he was quoted as saying.
The next-generation Opel Corsa, developed partially by PSA Groupe, will be offered as an all-electric variant.
The move makes total sense. One of the key elements that have plagued traditional carmakers such as General Motors for decades is a top-heavy management structure which often leads to lost resources and slower decision making. It’s important to underline that under the GM administration, Opel lost nearly 1 billion Euros ($1.12 billion USD) annually over the past two decades. By slimming down management, Opel’s operating profit in 2018 was 859 million Euros ($960 million USD), the highest in its 157 years as a company.
But cutting the upper management count was only part of the equation. Lohsheller says that simplifying the product line was another key driver at turning the company around. The carmaker used to rely on nine platforms to manufacture its cars, while post-GM Opel will have only two within a few years. The powertrains will also be condensed from ten engine families down to four, significantly reducing complexity and development costs. As a matter of fact, fixed costs were cut by 27 percent in 2018.
Finally, Opel’s turnaround is mainly propelled by benchmarking, both against competing and in-house products from the PSA Group, says Lohscheller.
“Do not underestimate the power of benchmarking. We quickly developed plans on how to catch up (to the competition). And the Opel people wanted to catch up; they wanted to be better,” admits the CEO. We’re not certain we agree with this bit wholeheartedly, since product competitiveness was never a problem for Opel under GM. But we digress.
Under PSA Groupe, Opel can also rely on a wide array of existing parts and established production lines, much like it could under GM. But it would appear that PSA, which operates the Peugeot, Citroen and DS Auto brands, was able to make the right types of cuts that GM either wasn’t prepared to, or didn’t know how. Post-GM Opel plans to focus on Europe as its main market, but will also reintegrate the Russian, Canadian, and American markets by 2025. Opel’s successful turnaround is a textbook definition of car making, business strategy, and operations done right in the 21st century.
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Source: Automotive News Europe
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opel partially failed as it had both hands tied behind its back. In Europe Chevrolet and Opel were competitors, neither were allowed to take the lead as the others stock would fall. it was a catch 22 and GM mangament had bigger fish to fry in north America and china. thus they decided to sell the gem instead of polishing it.
Everything is lies, Lohscheller is completely the PSA boss Tavares silent knee dog, He doesn’t say a word that doesn’t come from the mouth of Tavares and is exclusively propaganda intended to break down the self-esteem of the Opel workers so that they will unwillingly submit to the will of Tavares, the great sect leader.
Opel’s cars were and are totally superior to the cheap garbage PSA:s dissatisfied slave workers produce, except for exhaust and consumption which GM did not want to invest money in because these requirements only existed in Europe – But a car consists of infinitely more than this…
But PSA would never admit this…
Tavares has just been in Spain and threatened the workers… “work harder for lower wages… OR I move your work to Morocco!
These workers have agreed to all requirements and settled on lower wages and harder work and experienced these hard words like being unfair and wicked.
After these words, Tavares left the factory without listening to anyone’s views.
Everyone felt insulted.
I don’t know truth.please give some knowledge to Jaguar landrover.jlr is in death spiral of its own making causing massive losses to shareholders of Tata motors with high cash burn and negative free cash flows
GM’s main problem with Europe had more to do with currency exchange rates, when converting profits back into the U.S. Dollar. Ever since Europe switched into Euros, that’s when profits ended for U.S. based auto companies. Euro currency turned out to be much weaker when converting back into dollars. At the same time, German car makers benefited with the weaker Euro versus the Mark, resulting in great profit margins from U.S. export sales.
PSA does not have to convert sales dollars and profits back into U.S. currency.
It would appear that Germany adapted the euro as its National currency in 1999. The euro was officially released as the official currency of the European Union on January 1, 1999.
Much of this explanation does not seem sensible, especially things like platform and powertrain reductions. Those things might make a big difference going forward but unlikely to affect results in the first year of ownership. Also hard to imagine Opel under GM was overstaffed by in management to the extent that they make a difference in a billion dollar turnaround. More likely some accounting magic and some self-serving congratulations by the new management.
Is all about playing with numbers and transfer of some cost from one company structure to another. Is same true as the title of the picture illustrating this article – next generation Corsa has been completely developed by PSA – the only OPEL reminder is the logo….sad
What is not mentioned is who is paying for the redundancy costs at Opel? I recall reading that GM were still responsible for those worker entitlements under the sale arrangements to PSA. Of course Opel have dramatically reduced development costs as they no longer need to develop they own vehicle platforms and engines nor pay royalties back to GM (That’s a GM structural issue in reality). PSA got a good deal in buying Opel and Vauxhall brands, 2 brands, established retail distribution in markets they didn’t have good market position and factories they can close at little cost to their bottom line. Just pop Opel shells on top of the existing PSA platforms.
I agree with you