GM's German Castoff Returns to Health Under France's PSA Group
PSA Does to Opel Car Brand What GM Failed to Do in 20 Years
(Bloomberg) -- A year after General Motors Co. gave up on European automaker Opel, the brand is making money again under French owner PSA Group following nearly two decades of losses.
The turnaround shows PSA Chief Executive Officer Carlos Tavares is reaping the benefits of pushing Opel’s labor unions to accept job losses, and of cutting back on everything from printers to company phones. He’s also slashed development spending by piggybacking new Opel models onto existing platforms of the parent’s Peugeot and Citroen brands.
“This is simply the quickest turnaround I have seen in the auto industry in many years,” JP Morgan analyst Jose Asumendi wrote in a note. The shares surged 15 percent, the most since 2012 and were 14 percent higher at 4:52 p.m. in Paris.
The return to profit for the German Opel brand and British sibling Vauxhall, acquired in March 2017, adds another notch to Tavares’ reputation as a cost cutter, showing off his ability to achieve the savings necessary to compete amid Europe’s high wages and thin profit margins. PSA’s own recovery included a 2014 bailout, freezing pay, weeding out unprofitable models and shutting a plant.
As a result, the mass-market manufacturer has lifted its profit margin into the realm of premium brands like Audi, BMW and Mercedes-Benz. That will give the company room to maneuver at a time of unprecedented industry change in the industry. Regulation is forcing carmakers to produce profit-sapping electric vehicles even as buyers remains on the fence. PSA’s return on sales from carmaking rose to a record 8.5 percent for the Peugeot, Citroen and DS nameplates for the first half, and to 7.8 percent across the group including Opel.
“We’re seeing the first signs of this successful turnaround,” Tavares told Bloomberg TV’s Caroline Connan in an interview. “Each employee is contributing and I’m very happy to see the results with all of our stakeholders.”
During a later analyst call, the Portuguese native cautioned against celebrating Opel’s return to profit too early, calling it “a first sign.” The 59-year-old, whose austerity extends to using budget airlines and wearing Lee blue jeans, joined PSA over four years ago from Renault SA, where he was chief operating officer.
While he was No. 2 at the rival mass-automaker, he told Bloomberg in an interview that since he couldn’t get the top job there, he wanted to run GM or Ford Motor Co. instead. He stepped down a short while later.
Opel made 502 million euros ($587 million) of profit during the first six months of 2018 compared with a loss a year earlier, PSA said. The result excluded 406 million euros in one-time charges, after the carmaker forged an agreement in May with German labor representatives to eliminate 3,700 jobs from Opel’s German workforce of about 20,000 employees.
Since buying the ailing brands for 1.3 billion euros, PSA has said it’s making good progress on slashing costs of developing new models like the next Corsa hatchback by between 20 percent and 50 percent.
For the group, recurring operating profit jumped 48 percent in the first half of the year to 3.02 billion euros ($3.5 billion) as higher sales and popular models like the Peugeot 5008 sport utility vehicles helped offset higher raw materials costs and currency swings, the company said in a statement. That’s better than a forecast of three analysts complied by Bloomberg.
“Opel-Vauxhall has started to reveal its full potential for performance thanks to the strong involvement of its teams,” Chief Financial Officer Jean-Baptiste de Chatillon said on a call with reporters. For the first time in years, the brands booked a profit “thanks to cost reduction and improving pricing power.”
Just as it is bolstered by strong car demand in Europe, PSA is facing difficulties in other markets. It halted its operations in Iran -- its biggest market outside France -- in May to comply with U.S. sanctions, hoping for the French government to negotiate a waiver that U.S. authorities refused to grant.
In China, the manufacturer is working to turn around its operations and extend a nascent recovery in sales during the first half after deliveries last year slumped 37 percent in the region.
“I can tell you: We will not give up,” Tavares said.
To contact the reporter on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net
To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Elisabeth Behrmann
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