Opel celebrates ‘historic’ profit after decades of losses under GM

Opel called its 2018 profit “historic” after 20 years of losses under former owner General Motors.

The German brand and its UK sister business Vauxhall made a profit of 859 million euros ($979,000) in 2018 compared with a 179 million loss for the last 5 months of 2017 after PSA closed its acquisition of General Motors’ European business on Aug. 1 of that year.

Under its PACE turnaround plan, Opel had forecast a return to profitability by 2020, when it aimed for a 2 percent underlying operating margin by 2020.

What is most impressive is not that management delivered two years earlier than it promised, but that it earned a very healthy 4.7 percent return on sales of 18.31 billion euros last year and also contributed positive cash flow of 1.35 billion euros.

By comparison, rival VW brand could only muster 4.1 percent in 2017, the last reported annual figure, and that excluded charges from its diesel-rigging scandal.

That Opel’s turnaround occurred in the first year under PSA Group ownership calls into question the management strategy taken by former owner General Motors. GM was so desperate to finally rid itself of Opel, that it asked investors to take a financial hit just so it could seal the deal with PSA.

Criticizing Opel’s previous management would be somewhat unfair, however. After all, carmaking is a business with long life cycles and models such as the Insignia Grand Sport midsize sedan have shown Opel can deliver class leading features in an attractive package.

Opel’s former marketing chief Tina Mueller helped transform Opel from a loser brand to an underdog in its German home market with a clever campaign that broke stereotypes. Opel would have reached its breakeven goal promised by former CEO Karl-Thomas Neumann in 2016 if the UK’s vote to quit the EU had not hit its Vauxhall business.

So the building blocks for profitability were there. But there was always one piece missing.

That would be PSA Group CEO Carlos Tavares, who took on Opel’s powerful union to cut 3,700 manufacturing jobs in its uncompetitive factories in Germany and transferred 2,000 posts at Opel’s r&d center in Ruesselsheim, near Frankfurt to France’s Segula Technologies.

Tavares also focused on eliminating heavy discounting to maintain pricing, just as he did in turning around PSA. Total Opel-Vauxhall inventory, including independent dealers, stood at 195,000 vehicles at December 31, 2018, a decrease of 32,000 from the end of 2017, PSA said on Tuesday.

The pressure Volkswagen Group CEO Herbert Diess feels from the investment community is largely due to Tavares, who has shown that you can deliver strong margins despite weaker brands, building cars in high cost markets and heavy interference from domestic trade unions.

It’s fitting that Opel announced its profitability milestone on the 120th anniversary year of building its first car.

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