Skip to main content
Sister Publication Links
  • Automotive News
  • Automobilwoche
  • Automotive News Canada
  • Automotive News China
Subscribe
  • Subscribe
  • Newsletters
  • Login
  • HOME
    • Latest news
    • Automakers
    • Suppliers
    • New Product
    • Environment/Emissions
    • Sales By Market
    • On The Move
    • Auto Shows
    • Honda unveils its new Level 3 tech, but how does it work?
      Aston Martin boss Stroll has big plans for F1 team
      VW brand will accelerate electric vehicle shift
      Brembo-MAIN.jpg
      Brembo quarterly net profit up 18% despite COVID hit
    • VW brand will accelerate electric vehicle shift
      Spain will use EU funds for EV battery plant with VW's Seat, Iberdrola
      Porsche adds Taycan electric wagon, stepping up Tesla challenge
      Stellantis will increase pace of EV launches in Europe, U.S.
    • Opel Mokka 2020
      Stellantis battery JV seeks contracts with other automakers
      Sogefi appoints new CEO, virus weighs on 2020 results
      3BIDEN-MAIN_i.jpg
      Biden to press for $37 billion to boost chip output amid shortage
      Continental grille web.jpg
      Continental invests in object recognition startup
    • 6DEFENDER-MAIN_i.jpg
      Bigger Land Rover Defender confirmed by JLR
      Porsche adds Taycan electric wagon, stepping up Tesla challenge
      Toyota will stay in Europe's minicar segment while others electrify or leave
      Mercedes preps debut of EQE EV, a Tesla Model S rival
    • Valeo joins Bosch, GM, others in pledge for carbon neutrality
      GMEVBarra-MAIN_i.jpg
      GM aims to stop selling gasoline vehicles by 2035 in carbon neutrality pledge
      VW will appeal $20M Spanish diesel compensation ruling
      Death of diesel looms as automakers accelerate to electric future
    • UK sales plunge 36% in worst February since 1959
      Spain's February sales fell 38% in 'perfect storm'
      German sales plunge 19% in worst February since 2007
      Italy sales dropped 12% in February but incentives boosted demand from private buyers
    • Toyota names new CEO for Europe
      Audi appoints former Porsche exec as finance chief
      Sogefi appoints new CEO, virus weighs on 2020 results
      Audi's new chief engineer will accelerate EV push
    • Geneva Auto Show
    • Frankfurt Auto Show
    • Paris Auto Show
    • Beijing Auto Show
    • Shanghai Auto Show
  • Features
    • Long Read
    • Interview of the Month
    • Focus on Electrification
    • Focus on Mobility
    • Segment Analysis
    • Latest Launches
    • Supplier Spotlight
    • Europe By The Numbers
    • Apple, Nio, other auto newcomers get creative to avoid Tesla's 'production hell'
      How Amazon, Google are transforming the auto industry
      EV-only future looks closer than ever in Europe
      European car retailing poised for shake-up as 'agency' model gains support
    • Renault CEO bets on 'winning horses' for turnaround
      Nvidia CEO says software will soon define the car, drive profit
      Tavares: Keeping PSA, FCA merger on track an 'incredible' achievement
      Renault CEO outlines ambitious revival plan
    • VW brand will accelerate electric vehicle shift
      Spain will use EU funds for EV battery plant with VW's Seat, Iberdrola
      Stellantis will increase pace of EV launches in Europe, U.S.
      Opel Mokka 2020
      Stellantis battery JV seeks contracts with other automakers
    • Honda unveils its new Level 3 tech, but how does it work?
      Honda to sell limited batch of Level 3 self-driving cars
      VW tests self-driving taxis in Germany ahead of 2025 launch
      A 'genius idea' gets a second chance in Renault's mobility strategy
    • EVs make huge gains helped by incentives, tougher CO2 rules
      EVs, surging SUVs to hit Europe's biggest segment
      Wagons hold market share, but costly EV shift looms
      Electrification gains speed in Europe's key compact segment
    • Porsche adds Taycan electric wagon, stepping up Tesla challenge
      Hyundai counts on Bayon's 'distinctive' design to make small SUV stand out
      Mercedes positions C-Class as sportier S-Class
      Nissan Qashqai gets better handling thanks to new platform
    • How GKN is transforming to gain from e-powertrain shift
      Marelli CEO expects e-powertrains to provide long-term boost
      Veoneer boss expects to reach key milestone this quarter
      How Faurecia aims to become a hydrogen leader
    • Europe sales by model, January: Porsche, Lamborghini, Volvo defy down market; Toyota Yaris No. 1-seller for the month, VW Golf finishes 4th
      Top 10 sellers by market, January: Skoda Octavia finishes No. 1 or No. 2 in eight markets
      Russia sales fall 4% in January as rebound stalls
      CORRECTED: Turkey sales, January: Ford, Kia, Opel, BMW rise
  • Opinion
    • Blogs
    • Commentary
    • Guest columnists
    • geely.jpg
      Why Geely wants to be a contract manufacturer
      Jaguar Land Rover Gerry McGovern
      Gerry McGovern is right man to steer Jaguar reinvention
      A 'genius idea' gets a second chance in Renault's mobility strategy
      Skoda connectivity features need to offer more 'must-have' allure
    • Understanding the impact of design on marketing, brand and user experience
      Ex-Aston Martin CEO Palmer calls on UK to intensify battery commitment
      Why Apple must target the $230B luxury car market
      Apple car: Who will build it? Magna Steyr possible candidate
  • Photos
    • Photo Galleries
    • Geneva Photo Gallery
    • Beijing Photo Gallery
    • Frankfurt Photo Gallery
    • Paris Photo Gallery
    • Shanghai Photo Gallery
    • taycan_cross_1.jpg
      view gallery
      7 photos
      Porsche Taycan Cross Turismo
      view gallery
      11 photos
      Volvo C40 Recharge
      view gallery
      11 photos
      Hyundai Bayon
      view gallery
      9 photos
      Honda HR-V Hybrid
    • koenigsegg-gemera-front-quarter-passenger-01.jpg
      view gallery
      14 photos
      Koenigsegg Gemera
      view gallery
      21 photos
      Fiat New 500
      view gallery
      11 photos
      Aston Martin V12 Speedster
      view gallery
      13 photos
      Audi A3 Sportback 2020
    • At the Beijing show, sales rebound and EV boom mix with murky outlook
      3BEIJING-MAIN_i.jpg
      Beijing show to highlight competition for local EV makers
      Beijing auto show delayed due to coronavirus
      Maserati will unveil Ghibli hybrid at Beijing show
    • view gallery
      11 photos
      Mercedes-Benz Vision EQS
      view gallery
      11 photos
      Renault Captur
      view gallery
      5 photos
      Mercedes-Benz AMG GLB 53
      view gallery
      10 photos
      Mercedes-AMG GLE 53 Coupe
    • view gallery
      8 photos
      VinFast Lux A2.0 sedan
      view gallery
      8 photos
      VinFast Lux SA2.0 SUV
      view gallery
      9 photos
      Seat Tarraco
      view gallery
      7 photos
      Toyota Corolla station wagon
    • view gallery
      4 photos
      Nio ET Preview
      view gallery
      7 photos
      Infiniti Qs Inspiration concept
      view gallery
      5 photos
      BMW 3-series LWB
      view gallery
      9 photos
      Mini Clubman
  • Podcasts
  • Car Cutaways
  • EVENTS
    • ANE Congress Conversations
    • ANE Shift
    • ANE Rising Stars
    • ANE Eurostars
    • ANE Leading Women
    • Watch Again
      • July 9: EU green deal in the COVID-19 new normal
      • July 16: Assisted or Autonomous Driving
      • July 23: Challenges in Electrification
      • July 30: The Road Ahead for Europe
    • Meet the 2020 winners
    • Watch the 2020 Rising Stars awards again
  • More
    • Publishing Partners
    • Social Media
    • Contact Us
    • Media Kit
    • About Us
    • Capgemini: Securing the industry's future through a radical rethink
    • Capgemini: Succeeding with the automated driving journey through AI
    • Toyota Europe
    • UFI Filters
    • Facebook
    • Instagram
    • LinkedIn
    • Twitter
MENU
Breadcrumb
  1. Home
  2. Automotive News Europe
January 31, 2016 12:00 AM

How Opel, Ford will make Europe a reliable profit source after years of struggle

Christiaan Hetzner
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print
    Opel says a key to reaching breakeven will be having a full year of availability of the new Astra (left), while Ford expects to increase sales of performance cars such as the Focus RS (right).

    Late 2012 was a rough time for the European arms of General Motors and Ford. In September of that year, the U.S. investment bank Morgan Stanley diagnosed GM with a case of financial gangrene and recommended the immediate amputation of chronic money loser Opel. The following month Ford announced the most radical production footprint restructuring by an automaker during Europe’s long recession: it would close assembly plants in Belgium and the UK, as well as shut down a stamping plant in Britain.

    Fast forward to 2016 and things are very different.

    Opel is confident this is the year that GM’s European operations will break even after more than a decade of losses.

    Ford of Europe, which after three years of losses returned to profit in 2015 with the help of an accounting change, expects to once again become the money-making machine it was from 2004 until 2011.

    The timing of each brand’s rebound in Europe is fortuitous because top executives at GM and Ford likely will need to put more attention into China, where sales have slowed, and South America, where losses are mounting. The comeback of Opel and Ford also puts additional pressure on rivals such as Volkswagen brand, which has been losing market share.

    Ford of Europe says its share increased marginally to 8.0 percent last year, and that it rose to No. 1 in the unglamorous-but-lucrative commercial vehicles segment. It also is gaining traction in Europe’s fast-growing SUV segment. “Our SUVs were up 31 percent [last year] and in 2016 are expected to grow by about 30 percent to break the 200,000 barrier for the first time,” Ford of Europe President Jim Farley told Automotive News Europe.

    Opel Group CEO Karl-Thomas Neumann told ANE that SUVs are “one of the shortcomings” at GM’s European unit because its only competitive model in the segment is the Mokka subcompact crossover. “I wish we had three more of those,” Neumann said. “That’s why we announced we will do a large SUV, which will be another very emotional, high-tech flagship for the brand.” It’s all part of Neumann’s plan to boost Opel’s market share in Europe to 8 percent by 2022 from 5.8 percent last year.

    ‘Biggest threat’

    Adding SUVs and boosting market share were not key topics when talking about Opel a few years ago. Not when Morgan Stanley’s Adam Jonas and his team had classified Opel as the “single biggest threat” to GM’s long-term survival. According to their estimates, Opel and its UK sibling, Vauxhall, already had lost

    $16 billion in the previous dozen years and would bleed $1 billion more each year on average into the 2020s.

    GM’s board saw things differently. It opted to put 4 billion euros into an all-or-nothing gamble that Opel could be turned around by the end of 2016, hiring Neumann, a veteran German auto executive, to execute the plan. Today, Neumann has GM’s European business on the cusp of profitability. Helped by a painful-but-necessary plant closure in Germany, better pricing thanks to an improved brand image and a recovery in Europe’s car market, the automaker expects to break even this year for the first time in recent memory. “We will fight for these last miles and get across the finish line,” Neumann said.

    Ford also significantly cut costs in Europe while simultaneously investing in new product. As a result of that – and the accounting change that was announced last month – the automaker said it earned $128 million and had an operating margin of 0.6 percent in Europe during the first nine months of 2015.

    AUTOMOTIVE NEWS EUROPE E-MAGAZINE

    This story is from the February issue of the Automotive News Europe monthly e-magazine, which publishes Monday, Feb. 1. You can download the issues by clicking here. The e-magazine is also available to read on our iPhone and iPad apps.

    Important Europe

    The possibility that overall European car sales will grow for a third straight year comes at a critical time for Opel and Ford of Europe. Given current jitters surrounding China and questions on whether North American sales can keep growing, Europe is becoming an increasingly important market for global carmakers in general. Auto sales have expanded year-on-year in the EU for 28 straight months. Moreover, the region enjoyed its best December in more than 10 years in terms of absolute volume, and its near 17 percent gain matched the high for the same month in 2009.

    For GM and Ford, Europe may even become a core element of their equity story. Since volumes and profitability appear to be close to historic highs in North America, executives say that other regions will be counted on for future earnings growth

    “At some point, margins don’t grow any further,” Bob Shanks, Ford’s chief finance officer, warned during a Deutsche Bank conference in mid-January. “At 9.5, 10, 10.5 percent – these are extremely strong margins for a volume manufacturer [in North America]. I think the opportunity we have is to get the rest of the business to contribute.”

    With markets such as South America mired in recession, Europe is an obvious candidate to drive earnings. “Europe is probably the region furthest along in terms of problems the two carmakers have been fixing, since most of the work reducing structural costs has already been implemented. Ford closed Genk, and GM closed Bochum,” said UBS auto analyst Colin Langan, referring to car plants in Belgium and Germany. “Now it’s new products, improved pricing and a recovery in the market that will drive higher incremental profitability.”

    ‘Billion-dollar question’

    Ford and GM believe current conditions are conducive enough to turn their once-struggling European operations into solid businesses cranking out 5 percent operating margins or even more.

    For one, Europe is still about 1.8 million units away from a sales high of 16 million reached in 2007, and Russia is about 1.3 million away from a high of 2.9 million reached in 2008. Were both Europe and Russia to return to those levels there would more than 3 million additional sales for automakers to capture.

    Secondly, both carmakers believe they can dial back margin-eroding incentives if they restore luster to their brands, especially if they concentrate on profitable segments that offer the biggest appeal to consumers. “One of the things we are going to do differently is that we will have a more focused, more emotional lineup,” Farley said, adding that this change is “one pillar that I would stake my reputation on.” He believes the “billion-dollar question” that Ford and all automakers have to answer is: Which segments should we target? “We can’t compete in every segment, every niche in Europe,” Farley said.

    Heavy and loud

    Product weaknesses also have been addressed. For instance, Opel models such as the previous-generation Astra were criticized for their extra weight, while the brand’s diesels – developed together with truckmaker Isuzu – were considered jarringly loud. Even the car’s instrument panels were badmouthed for featuring a dizzying number of buttons, knobs and switches. Not only have all three issues been fixed in the new Astra that launched in October, Neumann’s team has added features generally found only in the premium end of the segment. Now the compact can be equipped with matrix LED headlights, high-tech wellness seats that massage the driver’s back and its versatile OnStar service, which, among others, acts as a kind of guardian angel in the case of an accident or stolen vehicle.

    ‘Right actions’

    “I was skeptical [Ford and GM could turn around their European operations] – especially about Opel. Both were losing well over a $1 billion just a couple of years ago,” said UBS’s Langan, who estimates the GM unit will hit a 3 percent margin by 2019 and sees Ford doing even better. “GM and Ford took the right actions, but the rest of the industry is struggling under excess capacity and that is only going to put pressure on pricing. Are 3 percent margins sustainable when the next downturn comes in Europe?”

    Simply ending the tide of losses is not the goal. Both automakers want more, and hope to be at the forefront of the trends shaping the industry. Opel for example has already created a peer-to-peer car-sharing business called CarUnity complete with smartphone app. Ford is also eyeing an entry into the mobility services business, which it estimates as a $5.4 trillion global market.

    “I don’t think any executive gets up in the morning and says ‘I love to break even’,” Farley said. “We are here to make a sustainable and vibrant business.”

    RECOMMENDED FOR YOU
    2020 Eurostar winner Frank Bekemeier
    Recommended for You
    2020 Eurostar winner Frank Bekemeier
    2020 Eurostar winner Frank Bekemeier
    2020 Eurostar winner Jürgen Weissinger
    2020 Eurostar winner Jürgen Weissinger
    2020 Eurostar winner Nicolas Racquet
    2020 Eurostar winner Nicolas Racquet
    Succeeding with the automated driving journey through AI
    Sponsored Content: Succeeding with the automated driving journey through AI
    Sign up for free newsletters
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please verify captcha.

    Please select at least one newsletter to subscribe.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    Get Free Newsletters

    Sign up and get the best of Automotive News Europe delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    You can unsubscribe at any time through links in these emails. For more information, see our Privacy Policy.

    SUBSCRIBE TODAY

    Get 24/7 access to in-depth, authoritative coverage of the auto industry from a global team of reporters and editors covering the news that’s vital to your business.

    SUBSCRIBE NOW
    Connect with Us
    • Twitter
    • Facebook
    • LinkedIn
    • Instagram

    Founded in 1996, Automotive News Europe is the preferred information source for decision-makers and opinion leaders operating in Europe.

    Contact Us

    1155 Gratiot Avenue
    Detroit MI  48207-2997
    Tel: +1 877-812-1584

    Email Us

    ISSN 2643-6590 (print)
    ISSN 2643-6604 (online)

     

    Resources
    • About us
    • Contact Us
    • 2020 Media Kit
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Awards
    • Rising Stars
    • Eurostars
    • Leading Women
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Automotive News Europe
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • HOME
      • Latest news
      • Automakers
      • Suppliers
      • New Product
      • Environment/Emissions
      • Sales By Market
      • On The Move
      • Auto Shows
        • Geneva Auto Show
        • Frankfurt Auto Show
        • Paris Auto Show
        • Beijing Auto Show
        • Shanghai Auto Show
    • Features
      • Long Read
      • Interview of the Month
      • Focus on Electrification
      • Focus on Mobility
      • Segment Analysis
      • Latest Launches
      • Supplier Spotlight
      • Europe By The Numbers
    • Opinion
      • Blogs
      • Commentary
      • Guest columnists
    • Photos
      • Photo Galleries
      • Geneva Photo Gallery
      • Beijing Photo Gallery
      • Frankfurt Photo Gallery
      • Paris Photo Gallery
      • Shanghai Photo Gallery
    • Podcasts
    • Car Cutaways
    • EVENTS
      • ANE Congress Conversations
        • Watch Again
          • July 9: EU green deal in the COVID-19 new normal
          • July 16: Assisted or Autonomous Driving
          • July 23: Challenges in Electrification
          • July 30: The Road Ahead for Europe
      • ANE Shift
      • ANE Rising Stars
        • Meet the 2020 winners
        • Watch the 2020 Rising Stars awards again
      • ANE Eurostars
      • ANE Leading Women
    • More
      • Publishing Partners
        • Capgemini: Securing the industry's future through a radical rethink
        • Capgemini: Succeeding with the automated driving journey through AI
        • Toyota Europe
        • UFI Filters
      • Social Media
        • Facebook
        • Instagram
        • LinkedIn
        • Twitter
      • Contact Us
      • Media Kit
      • About Us