GM vs. Ford For Opel and Ford, Mud and Stars

After suffering crises, Ford and General Motors' European subsidiaries have bounced back with differing degrees of success. Ford now enjoys billion-dollar profits while GM’s European brand Opel faces losses. Decisions made in the boardroom underpin their divergent fortunes.
A tale of two carmakers in Europe.

Ford and Opel, General Motors' main European subsidiary, both suffered billions in losses when consumers in Europe held off buying new cars after the 2008-9 financial crisis.

Both companies had nervous parent companies in the U.S. which sought to ease problems in their domestic markets through cuts at their loss-making European subsidiaries.

Fast forward to 2016 and the two U.S. companies are faring very differently in Europe, where each sell more than 1 million cars per year and enjoy a combined market share of 13.6 percent – nearly double the market share of all German carmakers put together in the United States.

Ford emerged successfully from a period of industry overcapacity and turned in a $1.2 billion operating profit last year in Europe, quadruple the amount made a year earlier. GM’s operations, on the other hand, reported another operating loss of $257 million, compared with $813 million in 2015.

While Ford has successfully closed down European plants to tackle overcapacitiy, the restructuring process of GM subsidiary Opel has still not be completed. Ferdinand Dudenhöffer, Director, Center of Automotive Research, University of Duisburg-Essen

On Tuesday, Opel boss Karl-Thomas Neumann was obliged to renege on his promise to make 2016 a profitable year, blaming Britain’s decision to leave the European Union. “Without the Brexit referendum and the collapse of the British pound, we would have enjoyed a positive annual return,” said Mr. Neumann.

Indeed, GM Europe took a charge of more than $300 million last year due to Britain’s decision in June to leave the E.U., keeping earnings in the red. GM sells its Opel cars in the U.K. under the brand Vauxhall and has a factory in the British town of Ellesmere Port.

But to be sure, there are other – homemade – reasons why Ford has sped away from its Rüsselsheim-based competitor.

For one, Opel still lacks products with significant profit margins, such as sport utility vehicles. The low-yield small and compact cars like Adam, Corsa and Astra are responsible for more than half of all sales. Only in the coming months will the push toward mid-size models show its effects. The flagship Insignia should be relaunched in June. The model is particularly well-liked in the company car segment and so should be good for Opel’s margins. With the additions of the Crossland X and Grandland X, two new models, the lucrative urban-friendly SUV segment should be expanded.

Ford has recognized earlier the trend toward more highly priced sedans and SUVs. SUVs like the Kuga are among the company’s best-selling models. Ford has also succeeded in selling more cars with pricier specifications and interiors. The result: Ford scores a turnover of $18,500 with every car it sells. That’s $2,000 more than Opel on a per-car basis.

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In the highly competitive German market, all automakers offer discounts. Even here, the differing strategies of Ford and Opel are all too clear. Since Wolfgang Kopplin took over sales and distribution for Ford in Germany in March 2014, the Cologne-based company has significantly decreased the amount of cars registered by the company itself, its dealers or rental companies. These kinds of so-called self-registered cars offer a means for automakers to force their cars onto the market, but these are sold as lightly used vehicles with significant discounts – at the expense of profit margins.

In 2016, 43 percent of all Opels sold in Germany were registered by the company itself or its partners, according to the CAR Institute of the University of Duisburg-Essen. At 24 percent, this figure is decidedly lower for Ford. “The many self-registrations squeeze profits,” said Ferdinand Dudenhöffer, an academic who studies the automotive industry and is the leader of the CAR Institute.

Another factor affecting earnings, is the degree of production capacity utilization, which is crucial to profitability in the auto industry. For Ford and Opel, overcapacities in 2012 posed significant problems and both reacted by closing plants.

In Ford’s case, capacity was decreased by one-fifth. In addition to suspending production at their two British locations, in Luton and Southampton, the plant in the Belgian city of Genk and its 4,000 workers fell victim to the company’s austerity measures. According to Ford, the hardline approach is paying off. The degree of capacity utilization at Ford factories are as they should be, a company representative said. “Overcapacity is not an issue for us.”

In the case of Opel, the closing of its German factory in Bochum toward the end of 2014 was met with significant concern. The GM subsidiary’s restructuring process has still not be completed. Opel announced a few weeks ago that the assembly of its next generation Corsa and Adam models would be moved from Eisenach, Germany, to Saragossa, Spain. As a countermeasure, the Mokka car is set to be built in Thüringen starting in 2019. With that, Opel wants to make its German factories secure going into the future. A new SUV should begin production in Rüsselsheim with a view toward improving the plant’s capacity and efficiency.

The two companies also have different marketing strategies. With the multiple award-winning campaign, “Repark Your Mind,” Opel marketing boss Tina Müller has spruced up the company’s tattered reputation. With venues such as the Bundesliga soccer league and the TV hit "Germany’s Next Topmodel," Opel is investing a large share of its advertising budget in sponsorships and placements. Ford has been much more conservative in the way it presents itself to the public. In the Cologne-based company’s advertisements, its various models, not celebrities, take center stage.

For Mr. Dudenhöffer, Ford’s strategy is more successful. “In the end, Ford has decidedly better product marketing than Opel,” he said. In the case of both companies, advertising has not translated to increased sales – both companies have seen decreased market shares last year. Ford’s advantage here is that it spent less on advertising than Opel.

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Britain’s decision to leave the E.U., which will take a couple of years to come into effect, weighs on both Ford and Opel. Ford is market leader in Great Britain and projects costs of $600 million due to Brexit. For GM, the United Kingdom is also Europe’s most important market. It is not for nothing that Opel boss Mr. Neumann attributed his company’s 2016 loss to the depreciation of the pound after the Brexit vote. In contrast to Ford, Opel can hope to diminish its losses through local production in Ellesmere Port.

When it comes to the sale of vans and pickup trucks, Ford has an advantage. These commercial vehicles rarely take center stage, yet they are immensely important for companies such as Ford and Opel. Here, Ford is in pole position. It sold three times as many commercial and utility vehicles as did Opel in 2016. Ford is Europe’s market leader in this segment. While Ford developed the Transit, its answer to the successful Sprinter van made by Mercedes, all by itself, Opel’s Vivaro is built on a Renault/Nissan and Fiat platform, making it difficult to differentiate from its competitors.

When it comes to next generation technologies, Opel has its forward-looking parent company GM to thank for its advantages over Ford. With the Ampera-e, Opel is launching an electric car with a range of 500 kilometers, or 311 miles, the first high-volume manufacturer to do so. The model – like GM’s Chevrolet Bolt – comes from the U.S., casting doubt on whether it will have a positive effect on the company’s European subsidiary. Opel has yet to even disclose the model’s pricing scheme. GM’s advances in hydrogen technology have sprung from a cooperation with Honda.

In contrast, Ford has given up on its pioneering role in the development of electric cars. The Focus Electric, with a range of only 225 kilometers, lags far behind its competitors. A production-ready hydrogen model is likewise not in the works. Ford’s hopes seem to be pinned on its plug-in hybrids. In the next five years, Ford is set to roll out 13 new (half) electric models. In Europe, hybrid powertrains are first and foremost interesting for commercial vehicles and sports cars, according to Ford Europe boss James Farley. Alternative powertrains are unlikely to play a significant role in the foreseeable future for volume producers.

 

Lukas Bay is an editor with Handelsblatt's companies and markets desk. To contact the author: [email protected].