Finding its Way Again

The strategy for Adam Opel AG, simply put, is up and out.

The European subsidiary of General Motors Corp. wants to move its brand up-market, via an expanded product lineup with signature styling.

Financially, it wants out of a state of decline, once and for all putting its restructuring plan behind it and moving on.

Against a backdrop of an uncooperative European economy, executives say the strategy is progressing slowly but surely.

The European market is “anemic, frustrating, slow-moving and cautious,” says Carl-Peter Forster, GM Europe vice president and Opel chairman and managing director.

The hope, says Forster in a briefing in Ruesselsheim, Germany, is that Opel's seen the bottom and an upswing is inevitable. The reality, he says, is recovery “has been on the doorstep for two years now.” Holding buyers back is a deep-rooted mistrust of their economic health.

“The crazy part is the economic fundamentals show there is clear demand,” says a frustrated Forster, pointing to the aging fleet and consumer savings.

Opel is working to heal itself, in anticipation of increased demand. Mike Burns, president-GM Europe, expects sales in the second half of the year to dip 2% to 3% instead of 4%, helped by a strong Central Europe. Opel and Vauxhall saw market share inch up to 8.9% in the first half of the year, compared with 8.7% year-ago. He projects GM Europe to be profitable next year in a market only 300,000 to 400,000 units better, helped by the cost-cutting efforts of Opel's turnaround under Project Olympia.

The problems didn't come overnight, starting in the late 1990s with overly optimistic planning. Opel added too much capacity. “At the peak, we had 3 million (units) capacity and never produced more than 2 million,” says Forster.

The auto maker had to spend more to move all that metal, leaving less to invest in product. The portfolio could not be maintained, let alone expanded. Opel found itself without enough niche or innovative products; it had lost ground on quality and missed the diesel trend in Europe.

The market may have been bad, but Opel lagged even that, says Forster. Since 1998, PSA Peugeot Citroen, Toyota Motor Corp. and, to a lesser extent, Volkswagen AG, have increased volume and market share; Renault SA has held steady, and Opel and Vauxhall have fallen.

Project Olympia was put in play in 2002, aimed at eliminating 3,000 jobs, cutting capacity by 15% and improving quality and image.

Olympia is “at least a 5-year program,” says Forster. The first years were marked by hard-driving measures to return to profitability. Capacity utilization is in the mid- to high-90% range now, but 100% is required to make money in a tough market where currency exchange also is buffeting profits.

Many projects require five years, he says, including future product programs, a diesel rollout and massive dealer restructuring that will take the number of dealers from 900 a year ago to less than 500 as of Oct. 1.

“We're not halfway through turnaround and not yet making decent money in Europe,” says Forster. The last time Opel had 6% operating profit was in the early 1990s. It remains the stretch target today, he says.

Product is key. It must be new, profitable, innovative and move the brand upmarket.

The auto maker is transitioning from a portfolio comprised 85% of traditional body styles to one that includes off-road vehicles, vans, wagons, niche coupes, cabrios and roadsters. Opel's 2001 lineup contained 80% classic concepts, 13% new and innovative products and 7% niche vehicles, says Alain Uyttenhoven, member of the management board and Opel brand director. The target is 40% classic styles, 40% innovative concepts and 20% niche models by 2006.

Director of Opel Design Martin Smith says he wants to regain the styling leadership Opel had in the 1970s in Europe, but lost to Audi AG.

Opel is going for brand architecture and versatility through interior space flexibility and wants also to be known for driving dynamics, styling and infotainment. “We will try to own the idea of flexibility, the way Volvo owns safety,” says Uyttenhoven.

And the overall direction is up, with the addition of the Daewoo brand.

Opel has aspired to move upmarket for several years, says GM Chairman Rick Wagoner, and now can as “Daewoo covers more of the value price point. Over time that's going to let us use more of the Opel product development capability to move up in line, which I think is a little more consistent with the German heritage and more consistent with the German cost structure.

“I'm not saying there are any near-term plans for Opel to vacate any existing segments, but you can imagine, over time, how this might play out,” says Wagoner.

The strategy dovetails with the Frankfurt debut of the Opel Insignia concept, a large rear-drive luxury car.

“Opel has a vacancy in its slot for an upper midsize luxury sedan, with a V-8,” says an expectant Forster. “The rear-drive Insignia fills the gap nicely, while representing Opel's auto vision of the future.”

Products such as the business-class Signum sedan, and the Meriva (small brother to Zafira) will help define Opel's design language.

The strategy is to derive volume from the three main architectures: Astra, Vectra and Corsa, which can be expanded, and to round out the portfolio with subsets such as the Zafira and Meriva, and niches such as the Tigra, says Burns.

Finally, Opel is beginning to rediscover its product cadence, says Burns, having lost it when financial woes hit. “We know the plays and when to run them now,” says Burns.