January 15, 2013 / 11:31 PM / 5 years ago

GM defends Opel plan based on new models, steady cuts

* GM sees product push driving Opel recovery

* Tie-up reports may reflect French government view -sources

* GM, Peugeot CEOs met Tuesday

By Ben Klayman and Laurence Frost

DETROIT, Jan 15 (Reuters) - General Motors Co vowed to stick with a gradual approach to Opel restructuring despite mounting skepticism about its chances and signs of French pressure for a more transformative tie-up with PSA Peugeot Citroen.

A day after GM was forced to deny reports it was preparing to offload its European division to Peugeot, the U.S. automaker sought to change the subject by wheeling out more vehicles at the Detroit auto show.

“Getting the story off the front page ... is incredibly important,” said Tim Lee, GM’s international operations chief and an Opel board member. “It’s all about the cars.”

Unlike U.S. rival Ford Motor Co, which is closing three plants to halt European losses, GM says immediate headline-grabbing closures aren’t going to fix its problems in the region. It has pledged to break even in Europe around 2015 and shutter a German factory two years later.

But doubts remain over whether the plans - that include 23 new models over five years - are enough to defend Opel’s current market share and reverse losses expected to reach at least $1.5 billion for 2012.

“The stable share is way too bullish,” said Morgan Stanley analyst Adam Jonas, who last year suggested GM sell Opel and doesn’t see the unit meeting its break-even goal.

“The revenue assumptions behind that don’t allow for enough further degradation” in the market or Opel’s business, he added. “Everyone’s doing new product.”

As GM presented its Cadillac ELR plug-in hybrid on Tuesday, Chief Executive Dan Akerson met with his Peugeot counterpart Philippe Varin in Detroit. Officials with both automakers declined to give details of their conversation.

But both companies dismissed press speculation that a Peugeot takeover of Opel was under discussion with the French government’s blessing.

“Opel is not for sale,” Akerson told reporters at the show on Monday. “It’s not to be given away either.”

GM and Peugeot already plan joint development of three vehicle families and small gasoline engines under agreements outlined in December, 10 months into their alliance.

Persistent reports of deeper tie-up talks may reflect French government enthusiasm for a combination seen offering Peugeot some relief from its own darkening outlook, according to people with knowledge of GM-Peugeot alliance discussions.

French Finance Minister Pierre Moscovici refused on Tuesday to confirm or deny a newspaper report that talks were underway on a deal that would see GM transfer Opel to Peugeot along with several billion euros.

Detroit-based GM took a 7 percent Peugeot stake last year as Europe’s second-biggest automaker burned through about 200 million euros ($265 million) a month. GM is also struggling in the depressed and highly competitive European market.

Mary Barra, GM global product development chief, defended the company’s Opel turnaround plans and European market assumptions.

“We’ve got to be prepared for a length that no one knows,” she said of the region’s downturn. “We’re taking that very much into consideration.”

The Opel recovery plan combines ambitious model rollouts with a “series of incremental things” to cut costs over time, subject to negotiations with Germany’s IG Metall union, GM’s Lee said.

Significant gains will come from new models like the Adam minicar and Mokka SUV lifting revenue growth, he said. “We need to get the product and business message above the din of labor relations.”

Some analysts believe the Opel strategy can deliver a 2015 break-even if handled right.

“If they’re able to launch great product, take some risks and leverage the PSA alliance, they should be able to get that quality image up,” said Citi’s Itay Michaeli.

And according to a New York-based investment banker, who asked not to be identified, pleasing GM shareholders may not be as hard as all that.

“Expectations are so low, anything they do now is upside,” he said.

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