Ailing Opel Shows Signs of Life | Business| Economy and finance news from a German perspective | DW | 15.01.2003
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Ailing Opel Shows Signs of Life

Opel, the troubled German arm of U.S. auto giant General Motors, surprised investors by posting lower than expected losses this year. But analysts say trouble remains ahead for a company problematic at its core.


Positive signs but still in the red

A rare ray of good news at troubled German car-maker Opel has buoyed spirits even as analysts expect the light to be fleeting.

German business media have reported that the car company's 2002 operating loss of less than 400 million euro ($423.1 million) is a marked improvement on the devastating record low of 674 million euro in 2001. Opel will be hoping that the current results will apply the brake on the financial slide that has been increasing in velocity since a loss of over 500 million euro was reported in 2000.

Opel's management board had pencilled in a loss for 2002 of 400-500 million euro and the official earnings, scheduled to be unveiled by Chairman Carl-Peter Forster at a news conference on Thursday, are likely to be lower than those expectations. The German business newspaper Handelsblatt added that a company spokesman had refused to comment on the information ahead of the official release.

An illusion of recovery?

The company has set itself a target of returning to profit by the fourth quarter of 2003 but analysts say that it will still not be enough for the company to break even for the year as a whole and that the long-term outlook remains one of concern.

Peter Schmidt, an analyst with Automotive Industry Data, told DW-WORLD that everyone involved in the industry is expecting better news from Opel.

"Of course the news will be upbeat,” he said. “There is no doubt that progress will have been made. The real question is 'how did this progress come about?'"

Opel Zafira

The Opel Zafira.

Mr. Schmidt added that the obvious cost cutting, redundancies and restructuring plans that have been implemented at Opel were sure to bring about a reduction in the operating loss but the underlying problems remain: "If you really want to show better figures - there is no magic involved. At the end of the day, the key to recovery - to 'real' black figures - is market share. Opel's market share dropped to 9.4 percent in Western Europe in 2002 and it continues to slide," Schmidt said.

"The situation at Opel remains dire. If customers don't visit the showrooms, if customers don't hand over checks...then there is no real recovery despite what the figures say," he said.

Unhappy anniversary

It is nearly a year ago to the day that the ailing car company posted its record operating loss of 674 million euro for 2001. It was the lowest point in one of the most worrying times in the company's recent history, a time that pushed Opel to the verge of liquidation.

Schweizer Automobilsalon Opel Vectra

The Opel Vectra.

The scale of the problem became clear when results for 2000 showed a surprisingly high operating loss of 502 million euro. Investigations into the financial health of the company revealed that the overall decrease in car sales had hit Opel hard and that the reliance on the once popular Astra model had significantly hindered growth in the face of stiff competition. From the amount of cars produced, Opel was recording a 15 percent excess in Europe - in real terms, 350,000 unsold vehicles a year.

As business in 2001 limped on in similarly declining fashion, Opel's parent company, General Motors - itself struggling to keep on top of spiraling losses and debt - instigated the "Olympia" restructuring program in a bid to stop its German subsidiary hemorrhaging cash.

The program included outsourcing initiatives, such as the "Powertrain" engine building joint venture with Fiat, the rebuilding of plants and the loss of around 2,500 jobs across its production plant in Bochum and its administration hub at Rüsselsheim. The program's aim was to improve results by 2 billion euro over a two-year period and bind the financial wound that was losing Opel 500 million euro a year.

2001 ends with cuts and job losses

Carl-Peter Forster

Carl-Peter Forster.

By the end of 2001, more jobs were in danger at the Bochum plant and Opel had admitted that the "Powertrain" joint venture with the troubled Fiat group had been unsuccessful and would also lead to redundancies. Things were looking grim. The economic climate and the apparent misguided strategy at Opel hinted at dark days ahead for the company stretching through 2002 and 2003, with the only possible ray of light coming from the 'Holy Grail' of the 2004 launch of the Astra's replacement. The production force at Bochum was down to 12,250 from 13,000 as the year came to a close.

In 2002, the company announced that there would be no pay increases that year, the Christmas bonus would be cut, overtime would go unrewarded and 1,600 jobs losses in Germany would be brought forward, rather than spread out over the next two years.

Record operating loss shakes Opel to the core

By the time the record operating loss of 674 million euro was reported in January 2002, news that Opel had only managed to achieve sales of 16 million in the previous year, a drop of 6.4 percent from 2000, was shaking the company's already basement level confidence. It shook further when the realization hit that the company was losing 1.9 million euro a day during 2001.

GM responded to Opel's burgeoning problems by cutting its budget from $1.4 billion to $1.2 billion while the U.S. giant struggled with its own financial woes.

Opel - Fabrik in Rüsselsheim

An Opel production line.

By May 2002, Opel was in negotiation with the Works Council to cut payments in excess of the union wage with the management calculating that the year loss would be between 400 - 500 million euro. The projected figures would mean that Carl-Peter Forster would miss his goal of reducing losses considerably.

Sales shrink in first quarter of 2002

Again it seemed that the odds were stacked against Opel. The company had lost a significant amount of customers in the first four months of 2002 with sales in the shrinking overall market declining by 2.4 percent.

Opel models fared disproportionately poorly in the German statistics of newly registered cars with registrations for the Astra, formerly number 2 behind the Volkswagen Golf, collapsing by 26 percent, while the Corsa also sold markedly fewer models than expected.Now, with the predicted operating loss likely to be lower than the management board's own calculations, Opel hope that the light at the end of the tunnel is more than the on-rushing headlights of financial ruin. In reality, the short-term good news may just be the night blindness before the head-on crash.

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