RUEIL-MALMAISON, France -- Fixed costs at Opel have already been reduced by 17 percent, PSA CEO Carlos Tavares told investors this week, as he outlined steps that he and Opel CEO Michael Lohscheller have been taking to turn around the troubled German automaker that General Motors sold to PSA last year.
Opel posted a loss of 179 million euros, or an operating margin of negative 2.5 percent, in the last five months of 2017 after PSA closed its acquisition of General Motors' European division on Aug. 1. That amount was less than some analysts had been expecting, given that Opel lost an estimated 400 million euros in the first half of the year. Tavares has vowed that Opel will deliver a 2 percent operating margin by 2020, and 6 percent by 2026, and he said Thursday that the outlook remained unchanged.
"We know we can turn around this company," Tavares said, speaking at PSA's new group headquarters outside of Paris, adding that PSA was seeing the first results from Opel's PACE revival plan announced on Nov. 9. He said the next guidance for Opel would be issued in early 2019, the midpoint of PSA Group's Push to Pass strategic plan, which will be updated to include Opel.
"Is it easy? No," Tavares said. "If it was, somebody else would have done the job before."
PSA booked 440 million euros in Opel restructuring expenses last year, group CFO Jean-Baptiste de Chatillon said. "It shows that we are already investing to transform Opel," he said, "This is a long road, but we are confident."
Tavares would not comment when asked if Opel was already breaking even. ISI Evercore said in a note to investors that it expected the break-even point to come this year.
Lohscheller and Tavares said that Opel was chipping away at fixed costs through synergies such as shared purchasing, citing savings of 20 million euros for media materials and a 39 percent reduction in information technology costs. Tavares said the next generation Opel Corsa would have 40 percent fewer unique components.
High labor costs
Several hurdles still remain, PSA executives acknowledged. The ratio of labor costs to revenue at Opel is 15 percent, while it is just above 10 percent at other PSA brands, a figure that Tavares said was one of the lowest in Europe. In recent months, PSA has cut shifts at Opel/Vauxhall's plant in Ellesmere Port in the UK and struck an agreement for a wage freeze at Opel's factory in Zaragoza, Spain.
"When I talk to a union leader and say, the manufacturing costs in this plant are double the manufacturing costs of French plant, it is something that is easy to explain? No," Tavares said. "Is it real? Yes. What can you do about it? Close the gap."
Opel's inventories still skew heavily toward the company rather than dealers, with 135,000 vehicles listed as group inventory and 129,000 listed as dealer at the end of 2017. That compares with a total of 97,000 Peugeot, Citroen and DS vehicles in group inventory and 319,000 in dealer inventories. "We have room for improvement," Tavares said.
Opel is also trying to shift sales from less profitable channels like fleets and rentals, but Tavares insisted he was not being "dogmatic" about "telling the Opel marketing team to reduce their sales in what we would call the toxic channels."
"We want to improve the market share in business-to-consumer channels because they are most profitable," he said. "For Opel, it's very simple, everything is in support of making money. Once we make money, then everything is open to do all the fancy things we would like to try."