Troubled GM/Opel Signals Further Cutbacks as CEO

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TAGS: EIND ELAB ECON ETRD ELTN GM
SUBJECT: Troubled GM/Opel Signals Further Cutbacks as CEO
Forster Moves On

Ref: 03 Frankfurt 07910

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1. (SBU) SUMMARY: GM recently shuffled top management at
European subsidiary Opel (based in Ruesselsheim outside
Frankfurt) amid continued weak consumer demand within the
flagging German economy. Effective July 1, Opel CEO Carl-
Peter Forster became President and Deputy Chairman of GM
Europe, charged with restructuring affiliates Opel, Saab,
and Vauxhall (Opel board member Hans Demant replaced Forster
as Opel CEO). GM's European headquarters will assume direct
management of subsidiaries and streamline production.
Continued losses at Opel stem from a half-decade of stagnant
demand in Germany, where new car registrations are one-fifth
below the 1999 level. Opel's experience is not unique --
sales in Germany (across various automakers) continue to
decline -- but Opel is uniquely dependent on the European
and especially German markets since it cannot compete with
GM models in many places outside Europe. END SUMMARY.


2. (U) As GM's main mass-market brand in Europe, Opel
accounts for about four-fifths of GM's revenues -- and net
losses -- in Europe. Forster, who joined Opel in 2001,
enjoyed early success in increasing Opel's German market
share from nine to almost 11 percent but was unable to cut
costs enough to make the troubled automaker profitable. The
year 2003 -- predicted to be Opel's turnaround year -- was a
particular disappointment as Opel posted a fifth year of
losses (EUR 384 million on falling sales of EUR 14.1
billion). Forster reacted by cutting production of the
Vectra and Signum models by 60,000 units and by reducing
working hours for assembly-line employees from 35 to 30
hours. In a meeting with the Consul General (reftel),
Forster cited political mismanagement of the German economy
and high labor costs as factors spurring Opel and its
suppliers to move more production to Eastern Europe. GM
leadership recently announced that the R&D center in
Ruesselsheim will play a leading role within GM Europe, but
made no guarantees about manufacturing in Germany.


3. (U) At GM's European headquarters in Zurich, Forster
will oversee Opel, Saab, and Vauxhall. GM Europe -- until
now primarily a holding company -- will have day-to-day
oversight of GM's subsidiaries. New Opel CEO Demant (and
the heads of Saab and Vauxhall) will report directly to
Forster. The restructuring comes at a time of continued
weak demand for cars in Germany: the VDA (German automaker
association) announced July 5 that new car sales in Germany
for the first half of 2004 fell 1% year-on-year (versus an
increase of 3% for Europe as a whole). This marks a fifth
year of stagnation (new car registrations in Germany remain
19% below the 1999 level).


4. (U) Opel Works Council head Klaus Franz (representing
Opel's 32,000 employees in Germany) expressed concern that
Opel will lose autonomy under the new management structure.
Labor sharply criticized the decision to produce the new
Zafira model at Opel's plant in Poland. Opel will however
shift production of 22,000 Vectras from the UK (Ellesmere
plant) to Ruesselsheim, a consolidation measure. Forster
and GM Europe emphasize that tighter brand integration --
including more shared platforms and components -- will bring
new opportunities for Opel: in the near future, for
instance, Opel could assemble Saab or Cadillac models in
Germany.


5. (SBU) COMMENT: Despite years of concerted efforts to
lower costs at Opel, the company is still in the red.
Unlike other automakers, Opel cannot compete with parent GM
in many overseas growth markets -- above all China and the
United States -- so it cannot paper over its European losses
with export gains overseas. Barring a dramatic turnaround
in Germany's domestic economy or far-reaching labor market
reforms, however, Opel has a long tough road ahead. END
COMMENT.

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