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 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.
Source: Automotive News Europe