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December 09, 2019 03:43 AM

How Opel CEO plans to make the brand sustainably profitable

Christiaan Hetzner
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    Opel's Lohscheller on whether the brand will get an SUV flagship: "The era of the very large SUV is over. What I can say about a next-generation Insignia is that simply assuming the body styles will continue exactly as they are now in the future is wrong."

    Michael Lohscheller has accomplished in 14 months what no predecessor achieved in decades. He returned Opel/Vauxhall to the black. The passionate marathon runner, who recently instituted a new monthly program called "Run With The Boss" did not just turn around the perennial money-loser but brought it to record results that rival those of Europe's top-performing volume automakers. Lohscheller spoke with Automotive News Europe Correspondent Christiaan Hetzner.

    PSA CEO Tavares has said profitability brings freedom. Opel appears to be on track to reach its profit margin target of 6 percent in 2019, seven years ahead of schedule. What will you buy with your freedom?

    In the past, Opel had many different restructuring programs with many different names led by many different management teams and yet the goal of profitability was never reached. We agreed on concrete targets with the PACE plan including a long-term target of a 6 percent operating margin by 2026. The fact that we are on track to deliver our commitment on profitability -- and we are pursuing our effort to do even better -- is extremely important for our credibility externally but even more importantly internally. That's why I'm representing Opel on PSA Group's four-person managing board.

    How big a deal is that to you and your team especially considering that the head of the group's flagship brand, Peugeot, is not on the managing board?

    PSA has a great set of strong brands, however, this is indeed the first time that Opel has a voice on the company's top decision-making body. The move has been very well-received by our workforce. You wouldn't believe how many employees have approached me to say how happy they are that Opel finally has a seat at this table.

    What have you been able to accomplish with that board seat that you could not before?

    On an operational level everyone on the 19-member Global Executive Committee can campaign for their ideas, so it's more of a symbolic value by emphasizing that Opel plays an important role in the group. PSA is all about performance. If you don't deliver, then it doesn't matter what board or committee you are on.

    What motivated the team to achieve the target seven years early?

    When you have a new owner after two decades of never-ending restructuring plans, people know change is not going to be incremental any longer. We used the opportunity to question everything about our operations.

    Such as?

    We reinvented Opel. We started with symbolic topics. Whether it was cookies at meetings or the personal chauffeur for the CEO, cost cuts were made across the board. When we temporarily cut working hours at our Ruesselsheim factory in January 2018, we also reduced hours here at headquarters. That never happened before. We reduced the number of senior executives by almost one-third to accelerate the organization. These moves did not go unnoticed. People saw a whole new company. This had a profound effect internally and helped the team execute much more quickly and easily. We couldn't have imagined that we would slash fixed costs by 28 percent last year. The biggest levers, however, were the reduced complexity combined with improved pricing power and revenue per car. They really made the turnaround possible.

    Can you sustain the 6 percent margin when automakers are indicating we are at peak profitability as CO2 compliance starts to hit the bottom line?

    First of all, we are very ambitious and will not slow down our efforts to continually improve our results. That being said, starting next year our results will be consolidated with the rest of the PSA brands.

    MEET THE BOSS

    NAME: Michael Lohscheller
    TITLE: Opel CEO
    AGE: 51
    MAIN CHALLENGE: Maintaining profitability while lowering CO2 emissions.

    Why?

    The other brands, Peugeot, Citroen and DS Automobiles, don't break out their results or issue earnings guidance, which is sensible because we are all one integrated group. You see the effects of the successful integration everywhere in the company. For example, the entire German sales team from our sister brands moved to Ruesselsheim from Cologne in November.

    Tavares said Ruesselsheim's manufacturing costs are 60 percent higher than at some of PSA's other plants even after the restructuring. Why is that?

    We have made substantial progress narrowing the cost gap with PCD (Peugeot, Citroen and DS) plants, but it is correct that we in Germany are the farthest behind and Ruesselsheim in particular. While we have high wage and energy costs here, that is not a valid excuse. There is no reason why Ruesselsheim cannot reach the benchmark. It's up to us to take out the complexity that is driving the costs. We will see tremendous improvements with the next generation Astra, built on a PSA platform as of 2021. Also, our flagship, the Insignia, which we currently build in Rüsselsheim, is the vehicle with the most options in our portfolio, but you can expect that will change in the next generation.

    Could you elaborate?

    Our model range was far too complex in the past. We want to focus on a certain number of models but get them right and then considerably reduce complexity within each model line. We are absolutely focused on managing the two issues driving our business: CO2 compliance and segment profitability.

    What will the next Insignia look like given midsize sedans are out of fashion? Could it be an SUV larger than the Grandland X, something closer to 4.8 meters in length?

    The era of the very large SUV is over. The market doesn't have sufficient volume. They are impractical and opposition to them is rising within society. We are well positioned with our existing range of compact SUVs. What I can say about a next-generation Insignia is that simply assuming the body styles will continue exactly as they are now in the future is wrong.

    So, you would rather have two small crossovers competing against each other in the same segment than expand into a new one?

    The successor to the Mokka X will be a standard bearer for our brand. It will have a much greater focus on lifestyle and will carry many elements of the very stylish GT X Experimental concept. That will help differentiate it more from the Crossland X going forward.

    What would the PSA-FCA merger mean for Opel?

    There's a chance for us to have greater economies of scale, but at the end of the day nothing changes in terms of our positioning in the market. Before and after, Opel and Vauxhall will still be the only German and British brands in the group.

    So Vauxhall stays?

    For sure. There is no other British volume brand around. We believe this is an opportunity, especially in the time of Brexit. We have seen a clear increase in volumes of our Vivaro, which is built in the UK, after we advertised it was, Made in Britain for Britain. Focusing on its unique Britishness is paying off.

    AUTOMOTIVE NEWS EUROPE MONTHLY MAGAZINE

    This story is from Automotive News Europe's latest monthly magazine. To view the new issue, as well as past issues, click here.

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