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Opel restructures as a stock company, gains market share

Auto manufacturer Opel is restructuring, gaining market share, working extra shifts at plants and hoping to at least break even in 2011. But one analyst says the company will "need a little tailwind" to meet its goals.

An Opel hood ornament

Opel has polished its outlook through restructuring

General Motors' once-beleaguered European subsidiary Opel is zipping into the New Year with the corporate equivalent of a fresh paint job.

The Russelsheim-based company announced Wednesday it has restructured as a German AG stock company, putting corporate decision makers and labor representatives together on the same supervisory board.

During the past five years, Opel has used its status as a private limited company to consolidate what was a tangled network of some 60 legal entities, to invest in new models and technologies and to rid itself of bad blood between management and workers.

Adam Opel AG – as the company is now known in full – is still wholly owned by GM and won't be listed on the stock exchange. Its employees will now have 50 percent supervisory board voting rights, giving them a say in product and investment planning. They are currently forgoing 265 million euros in annual pay to help overhaul the company.

Nick Reilly

Interim Opel CEO Nick Reilly has put the company on a fast track to growth

Klaus Franz, Head of the Opel's Works Council and Deputy Chairman of its Supervisory Board, said in a release that returning to the status of an AG company was a "basic prerequisite" of the restructuring program.

"In conjunction with our return to an AG, employees will have more opportunities to contribute particularly in terms of product and investment planning on the Supervisory Board level. In addition, the legal form of an AG guarantees a high degree of transparency,” he said.

An alternative for Opel would have been to form a Societas Europaea (SE) under European law, although labor representatives would almost certainly have been in opposition as they wouldn't be guaranteed the same level of representation.

Opel spokesman Andreas Kroemer said the restructuring as an AG brings a new degree of self determination to the company.

"We didn't see any advantage in forming an SE instead of a German AG," he told Deutsche Welle. "We chose the AG because we see a stock company as a better suited legal form for a company the size of Opel."

Market share growing

Opel has been riddled with Europe-wide layoffs, with its most recent casualty being its Antwerp factory, which once employed more than 2,500 people and finally closed its doors shortly before Christmas.

But times may be changing for the company with its 47,000 employees and 13 factories. In 2009, it closed its offices in Zurich – which governed its 60 individual legal entities – in favor of consolidating control in Russelsheim.

An Opel hydrogen-powered car

Opel is hoping to win market share through new technologies

A range of new models have helped Opel increase its market share in Germany by 8 percent during the second half of 2010. Factories building the new Opel models Insignia, Meriva, Astra and Astra Sports Tourer are working extra shifts to meet demand.

This year, Opel plans to release the Ampera, an extended-range electric vehicle.

Christoph Stuermer, an auto sector analyst at IHS Global Insight in Frankfurt, said the company's former structure created a "huge amount of inefficiency and inconsistency." Opel has since gained ownership of its individual subsidiaries, which is crucial to its recovery chances, he said.

"All the activities that I see on Opel's side point in the right direction," he told Deutsche Welle. "They've identified the revenue side as the main point they need to work on. They need to be able to sell more cars at better prices. For that, they need to work on their brand image, their retail strategy and their dealer network. They're doing all of the right things, but the auto industry and buyers tend to be a little bit sluggish – things don't move in a matter of weeks, but rather in months or years."

Stuermer added: "Yes, they have a chance. But they'll need a little tailwind."

Streamlining and innovation

The Opel factory in Eisenach

Opel factories are working extra shifts to meet demand

In its current form, Opel is essentially a streamlined version of what once was General Motors Europe (GME), but it excludes the Chevrolet brand, former subsidiary Saab and the entire Russian market.

Opel's interim CEO, Nick Reilly, announced in late 2009 a plan to reach a break-even point in 2011 and begin to profit in 2012. At the time, however, the company expected to loose money in 2010 and did.

Company spokesman Kroemer said Reilly's plan is on track.

"We're currently in a better position than the plan had predicted," he said. "It was clear we would end 2010 at a loss… but that has to do with one-time costs like closing the plant in Antwerp and persistent workforce reductions throughout Europe."

Opel is also investing in major projects including the modernization of its Bochum plant, and the construction of a new motor factory in Hungary, Kroemer said. Unified under one operational control structure, it will likely benefit from better organization and strategy.

Skeptics remain

This puts development, production, distribution and marketing in the same hands," he said. "Opel and (British subsidiary) Vauxhall are significant for GM's presence in Europe, so GM is also strengthening its position through this restructuring."

Opel workers protest in Antwerp

The company recently closed its Antwerp plant

Despite the good news, not everyone is convinced that Opel will recover on a long-term basis. Juergen Pieper, an auto analyst with Bankhaus Metzler in Frankfurt, estimates the likelihood of that happening to be under 50 percent. Still, he believes short-term recovery in coming years is possible.

"Certainly one has to recognize that Opel has weathered the financial crisis bravely, and what's good is that the global automobile market is progressing with significantly more strength than anticipated," Pieper told Deutsche Welle. "But on the one hand they're facing high costs – because their production locations are primarily in Western Europe and Germany – and they don't have a good price position anymore, and they're largely shut out of growth markets like China. It's simply a disadvantageous situation."

Author: Gerhard Schneibel
Editor: John Blau

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