A winning formula?

21 November 2017 | Ian Henry

Ian HenryLike all new strategic plans announced by vehicle companies from time to time, the new Opel PACE! plan leaves many questions unanswered. It’s not clear yet what will happen to the enlarged manufacturing network which PSA-Opel/Vauxhall now has; by common consent, the group has too many plants, but CEO Carlos Tavares has set a great of store by not having closed a plant during his stewardship at PSA. Factory managers have been left in no doubt that they have to cut costs (PACE! suggests something over €1100 a vehicle is required) but if they can come up with ways of doing this, then they will have a genuine chance of being allocated future models.

Tavares has inherited the desire from Carlos Ghosn, his former boss at Renault to cut costs; apparently, when he turned up at one of the UK plants for a review, he arrived with his own sandwiches for lunch, having stayed in a budget hotel the night before, and having flown in on a budget airline. It was notable that during his presentation, the new Opel CEO, Michael Lohscheller, specifically mentioned cutting travel costs: no more business travel perks for Opel management it would appear.

It is worth remembering that when Tavares arrived at PSA, it was close to bankruptcy and required a significant capital injection – and new shares being issued – from the French government and Chinese vehicle company Dongfeng. Opel/Vauxhall had something like US$16 billion of accumulated losses over two decades, so GM’s wish to bail out was not surprising. Having found a formula that seems to work at PSA, the challenge for Tavares – and Opel’s new managers – is to apply these same ideas to Opel/Vauxhall.

The real challenge for PSA will whether it can apply its proven methodology to a German company, especially one with a powerful union and a significantly higher cost base. GM had quite a battle when it negotiated the closure of the Bochum factories a few years ago; it was expensive battle, costing something in the region of €750-780m. Such a figure goes some way to explain why cost savings and increased efficiency of existing operations are potentially so significant – if Opel can really save €1100 per car then this would mean close to a €300m saving per year in Germany alone. Two and half years of PSA cost savings would be equivalent to the costs of closing a plant, so if Opel can do what PSA wants – and consequently make vehicles at a profit – the long-term attractions are clear.

Tavares has taken on quite a task in turning around Opel/Vauxhall. His team’s methodology for turning around a failing company has worked well once; logically it seems reasonable for the same processes to have a decent chance or working at Opel/Vauxhall – the challenge may, however, not be in personal success, but in whether the products which the new Opel/Vauxhall will produce are more in line with market demand than the current model line-up. Opel wants to get back over 1m units a year, and plans to make 400,000 SUVs by 2021, including some transferred from a remaining GM plant in Korea. 400,000 SUVs or crossovers is ambitious but whether it is both achievable and indeed enough for the Opel/Vauxhall to eventually become financially viable again is the issue which will likely determine the success or not of this strategy.

Tagged with: Carlos Tavares, Opel/Vauxhall, PACE, PSA