GM reshuffle to test Opel CEO's turnaround skills

FRANKFURT Fri Dec 20, 2013 12:48pm EST

Karl-Thomas Neumann, CEO of Adam Opel AG, presents the new Opel Insignia car during a media preview day at the Frankfurt Motor Show (IAA) September 10, 2013. REUTERS/Kai Pfaffenbach

Karl-Thomas Neumann, CEO of Adam Opel AG, presents the new Opel Insignia car during a media preview day at the Frankfurt Motor Show (IAA) September 10, 2013.

Credit: Reuters/Kai Pfaffenbach

FRANKFURT (Reuters) - A management rejig at General Motors (GM.N) and the scaling back of its alliance with PSA Peugeot Citroen have created fresh uncertainty over the U.S. carmaker's strategy for Opel, just as the European business seemed to have secured a settled future.

Karl-Thomas Neumann, Opel's sixth boss in the past decade, has made a big splash at the loss-making business, helping to land a multi-billion euro investment from bosses in Detroit.

The 52-year-old German also appeared to win an important victory when GM said it would drop its Chevrolet brand in Europe and instead focus resources on Opel and sister brand Vauxhall.

But some Opel staff worry these advances are in doubt after the appointment this month of new GM chief executive Mary Barra. Outgoing CEO Dan Akerson said Barra had been chosen because she had "brought order to chaos" in global product development, and tasked her with making vehicle development even more efficient.

Such words spark concern at Opel, which feels constant pressure to use global platforms and to minimize the level of expensive customization for the European market has handicapped its ability compete, a former Opel executive told Reuters.

The management reshuffle at GM will also see Steve Girsky, who successfully campaigned for more investment in Opel, leave his position as GM vice chairman.

"A major Opel protagonist is leaving and nobody knows whether GM will maintain its high-level commitment to Europe," a staff member at Opel, who declined to be named, told Reuters.

A GM spokesman in Detroit said there was no change in its stance on Opel.

In a further blow for the European brand, GM also said this month it was paring back an alliance with France's PSA Peugeot Citroen (PEUP.PA) after it failed to reach cost targets.

Opel was relying on that partnership to develop a common platform to help revamp its range of small cars, some of which like the Corsa have been on the market since 2006, and drive its market share back above 6 percent in Europe, compared with a high of more than 10 percent a decade ago.

STARTING WITH ADAM

So, just at the time Opel needs to build new cars for the European market, it has seen a key manufacturing partnership weakened and is set to lose a GM board member who fought the brand's corner in Detroit. That has put the pressure on Neumann, a keen marathon runner from Lower Saxony, to deliver.

As recently as April, he helped secure 4 billion euros ($5.5 billion) of investment from Detroit to fund 23 new models and 13 new engines by 2016 to overhaul Opel's ageing product range.

But Metzler Bank auto analyst Juergen Pieper said reversing years of neglect would not be easy.

"If you have a weak brand, your cars need to be twice as compelling to persuade clients to switch and to grow sales," he said. "Merely developing cars which are 'as good' is not enough. Clients will stick with the brand they already like."

Neumann's relations with his bosses could depend in part on the success of Opel's recently-launched Adam subcompact city car, built on a cut down Corsa platform with upmarket interior trim and multimedia features.

The early signs do not appear encouraging.

Opel started selling the Adam in January but production at its Eisenach plant - where the Adam and the two-door version of the Corsa are made - ran idle for five days in October, and for six in November, due to a slump in demand.

Opel says this is due to lower sales of the ageing Corsa, insisting that demand for the Adam remains high, with more than 55,000 orders since it was launched. In Germany sales of the Adam are on track to beat 20,000 sales by year end, Opel said.

The latest sales figures from industry body ACEA show that while European car sales rose 0.9 percent in November, GM sales of the Opel and Chevrolet brands in Europe slumped 3.8 percent.

"If the cars that are built for Europe to European specifications fail to sell, then the whole rationale of giving Opel more leeway falls away," said another former Opel executive, who also declined to be named.

FOCUS ON EUROPE

GM, the world's No. 2 carmaker behind Toyota (7203.T), came close to selling Opel in 2009 before changing its mind.

Opel has suffered for years from management disruption, a scarcity of small cars which resonate with European consumers, and the tension between GM's desire for global economies of scale and Opel's calls for customizations for the local market.

The current Opel Astra is a case in point. By sharing a platform also used in GM's Chevy Cruze, the car is wider, and 20 to 30 kilos heavier than its main European rival, resulting in lower fuel efficiency and slower acceleration, the first former Opel executive said.

The Astra has also been on the market since in 2009, a period during which Volkswagen (VOWG_p.DE) has put two generations of its rival Golf model into showrooms.

Opel's Corsa has a similar problem. It competes in Europe's small car or subcompact segment, the biggest slice of the market totaling 24 percent of new car registrations in the region year-to-date, according to data from JATO Dynamics.

Opel's current Corsa subcompact was launched in 2006, making it one of the oldest products being offered in European showrooms where it competes with the Ford Fiesta, the Peugeot 208 and the Renault Clio. In 2012, Corsa sales fell 14 percent.

A new version of the Corsa, based on a platform developed with Fiat, is due next year. But Peugeot and GM this month said plans to jointly develop the subsequent generation have now been buried, forcing Opel to choose a platform from the GM stable.

Neumann, who studied electrical engineering at TU Dortmund University, came to Opel after starting out as an engineer with Motorola Semiconductor, and moved to become CEO of German auto supplier Continental. He joined Opel only in March after a stint at Volkswagen where he served as head of its China operations.

At Opel, Neumann has moved to pare back the European brand's once global ambitions and repatriated some production from South Korea by moving production of the Mokka subcompact sport utility vehicle to Spain from the second half of 2014.

But this has left Opel with only a handful of export markets such as Chile, Singapore and the UAE, and more exposed than ever to Europe, where the industry is struggling to emerge from a six-year slump in sales and dogged by overcapacity.

"Rebuilding a weak brand takes years of delivering outstanding product, the question is whether Europe has so much upside potential that General Motors will decide to make Opel its top priority for years to come," Metzler's Pieper said.

(Additional reporting by Ben Klayman in Detroit; Editing by Mark Potter)

(This story was refiled to show European car sales were up 0.9 percent in November, not 6.9 percent in the 19th paragraph.)

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