By William Boston and Nico Schmidt
RÜSSELSHEIM, Germany-- General Motors Co.'s European unit, Adam
Opel AG, could be on the cusp of breaking even before its 2016
target date, welcome news for GM Chief Executive Mary Barra amid
the fallout from a massive recall that is expected to hit GM
profits.
For years, Europe was GM's biggest headache. It is main European
business, the Rüsselsheim, Germany-based Opel unit, suffered
declining sales, staggering losses and a depleted brand. Then, GM
brought in a team of outsiders, led by former Volkswagen AG
executive Karl-Thomas Neumann and decided to shut down a plant in
Germany, invest more than $6 billion in Europe and launch no fewer
than 23 new models by 2016.
The changes are paying off. Last year, Opel's sales stopped
falling, and in the first two months of 2014 sales in the European
Union of the Opel and its British Vauxhall brand rose 3%.
In an interview with The Wall Street Journal, Mr. Neumann is
still sticking to his official target to return Opel to the
break-even point in 2016, but analysts suggest Opel could reach
profitability as early as next year.
"If everything goes well, theoretically that can't be ruled
out," Mr. Neumann says.
His cautious outlook is a sign of the cultural change at Opel.
In the past, GM's European executives often set ambitious targets,
but failed to deliver, rushing to move the goal posts after it was
too late to intervene and fix the business. In his first year, Mr.
Neumann delivered above-budget results.
"That is something new at Opel," he says.
He is also wary about promising too much too soon because he
knows there are factors beyond his control that could slow Opel's
progress. The recovery of car sales in Europe is gathering
traction, but it is still unclear how sustainable the European
recovery is. Sanctions against Russia or a shooting war in Ukraine
could hamper GM's business in Russia. Opel manufactures about
90,000 vehicles a year in St. Petersburg, accounting for as much as
10% of its EU sales last year. Over the past few months, the plant
has canceled shifts and worked shorter hours as car sales in Russia
fell.
"We're careful now with new investment and are trying to
understand and monitor the situation as it develops," he said. "Of
course, the (development of the) Russian economy is a cause of
concern."
In the long-term, Mr. Neumann sees Russia and Turkey as European
growth markets for Opel. That is why he pulled the plug on China
last month. Opel sells fewer than 5,000 cars in China through a
costly network of 22 dealerships. Instead of investing hundreds of
millions of dollars to build an Opel franchise in China, Mr.
Neumann decided to use the company's resources to focus on
Europe.
The decision has more than a small touch of irony. Before
joining Opel, Mr. Neumann was CEO of Volkswagen AG's business in
China.
"Now Opel has a great strategy for China is what a lot of people
thought, " he says, chuckling. "As GM, we are still bullish about
China. But for Opel it is just a fact that our resources are better
used somewhere else."
The 150-year-old car maker was acquired by GM in 1929 and for
decades was a leading innovator. In the 1990s, Opel lost its mojo
and GM's European business began bleeding cash, prompting a series
of unsuccessful restructurings and a revolving door for top
management in Europe.
In 2012, Stephen Girsky, then GM's vice chairman and point man
on Opel, came up with a road map to revive GM's European business
by 2022, with the break-even mark set for 2016. The plan involved
massive investment in Europe and a decision to rebuild Opel and
transform it into GM's exclusive mass-market brand in Western
Europe.
Mr. Girsky's boldest move, however, was the decision to bring in
a group of outsiders with no ties to GM to lead the campaign. In
addition, to Mr. Neumann, who arrived in March of 2013, the company
hired Peter Küspert, a 19-year veteran of Daimler AG, to oversee
sales, and Michael Lohscheller, formerly the chief finance officer
of VW's U.S. business.
A series of new models, such as the Adam, a sporty compact that
is especially popular with young women, and the Mokka, a small
sports-utility vehicle, as well as pepped up versions of Opel's
flagship Insignia, Astra and Corsa models are attracting customers
back to the Opel brand.
"The brand was a big problem," says Mr. Neumann. "The brand
should help, but in our case it was like an insurmountable
wall."
Mr. Neumann hired an outsider to rebuild the Opel brand. Tina
Müller was head of marketing at Henkel KGaA, a personal care
products maker that owns Dial soap, with no experience in the car
industry. The appointment was controversial at Opel.
"Everyone said a car isn't shampoo," said Mr. Neumann, recalling
the discussions with colleagues. "But a car is also a consumer
product. We spoke to her and it was immediately clear to me that
she's the one I want."
Ms. Müller hired the German ad agency Scholz & Friends, who
came up with a creative campaign through posters, TV advertisements
and YouTube videos to encourage Germans to reconsider their
prejudices. The ultimate aim is to get consumers to change their
attitudes about the Opel brand. She has hired Claudia Schiffer, the
star model, as Opel's brand ambassador in Europe, saying she
embodies what it means to be German. A key part of the campaign is
to shed Opel's image as a failed American company that shut down
plants and fired German workers.
Comparing her previous job at Henkel with her task at Opel,
which she describes as the biggest marketing challenge in Europe
today, she says marketing is about the brand, not the product.
"We had similar problems," she says. "(The brand) was a little
dusty, it became a little boring. It is a similar task now with the
Opel brand."
Opel isn't out of the woods yet. The company is still making
losses and sales have only just started to grow slightly. But back
in Detroit, executives are closely following what is going on in
Rüsselsheim. After taking the helm at GM, Ms. Barra's first trip
abroad was to visit the Opel plant in January and pledged further
investment.
"At the moment we are seen as a benchmark because of the
holistic way with which we have approached the turnaround," said
Mr. Neumann. "Last year, for the first time in years, we not only
met our targets, we surpassed them."
Write to William Boston at william.boston@wsj.com and Nico
Schmidt at nico.schmidt@wsj.com
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