Analysis: GM may develop future Opel vehicles on its own in Europe

Reuters
A sign depicting the Opel logo is pictured in front of the Opel Adam AG headquarters in Ruesselheim
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A sign depicting the Opel logo is pictured in front of the Opel Adam AG headquarters in Ruesselheim April 10, 2013. REUTERS/Lisi Niesner

By Ben Klayman and Paul Lienert

DETROIT (Reuters) - General Motors Co's (GM) ability to reverse years of losses in Europe is coming down to products, not partners.

The U.S. automaker appears to be gaining confidence that it doesn't need the help of France's PSA Peugeot Citroen (UG.PA) or any other partner to stem more than $18 billion in European losses over the past 13 years.

Underpinning that confidence is an ongoing initiative to overhaul and consolidate GM's global vehicle platforms, according to GM executives and U.S. suppliers familiar with the company's plans. That program, the suppliers said, will enable GM to develop and build most future Opel products on its own.

PSA confirmed Wednesday the partners were scaling back a wide-ranging alliance announced in early 2012, with GM likely pulling out of a program to build its next-generation Opel Corsa subcompact on a shared PSA platform.

GM said Wednesday that planned replacements for two Opel compact vans, the Meriva and the Zafira, both due in 2017, would remain on jointly developed PSA platforms, but declined to comment on the future Corsa.

When the PSA-GM alliance was announced 20 months ago, it was "a head-scratcher," said Guggenheim Securities analyst Matthew Stover, who has a "neutral" rating on GM shares. "This deal made no sense for GM," Stover said Wednesday. "It can't keep looking for solutions in others."

Last month, GM executives privately confirmed that a significantly revamped Corsa, still based on an old Fiat platform, would be introduced in Europe late next year. The replacement for that car, due in late 2018, was to have shared a new PSA-designed platform designated EMP1 with the next-generation Peugeot 208 and Citroen C3.

Now, it appears the redesigned Corsa in 2018 will be built on a version of GM's own small-car platform, dubbed Global Gamma or G2XX, the supplier sources said.

The same platform is expected to underpin the future replacements for the Chevrolet Sonic, the Buick Encore and the Opel Mokka, the suppliers said.

Other future Opel models for Europe are expected to share their GM-developed underpinnings with a new generation of Buick vehicles for the United States and China, suppliers and GM executives told Reuters last month.

"Ford has done a much better job than GM of leveraging their global platforms in Europe," said Philippe Houchois, managing director and lead European auto analyst at UBS Securities in London. "For GM, having to deal with the new platforms at PSA was a big negative in the alliance."

Now GM, under global product development Mary Barra, has begun shifting its future vehicle platforms to basic modules that still use common chassis and powertrain components, but enable much more flexibility in terms of design, size and configurability. The modules can be better tailored to suit individual markets such as China and the United States, GM executives said, while still providing economies of scale.

Tim Ghriskey, chief investment officer with Solaris Asset Management, a New York investment management firm that has held GM shares in the past and follows the stock closely, said the potential unwinding of the alliance "could be another move by the new (Opel) leadership to continue to right the boat in Europe . . . Perhaps Peugeot was simply a distraction for them."

GM previously had said it would not put any more money into the ailing French automaker. GM paid $423 million for its 7-percent stake in Peugeot, but in February wrote down about half of that investment.

PSA's recent proposal to sell a minority stake to China's Dongfeng Motor may have further strained its relationship with GM and aggravated GM's Chinese partner Shanghai Automotive , which is a direct competitor to Dongfeng.

GM Vice Chairman Steve Girsky told Reuters last month that the future of the GM-PSA alliance could be affected by Dongfeng's level of influence in any expanded partnership with Peugeot. GM is PSA's second largest shareholder behind the Peugeot family.

Girsky said then that fixing GM's European operations was the priority and the alliance was simply "another tool in the tool kit" to help achieve its goal of a return to profits. That wording, used for several months now, led many to believe the U.S. automaker was distancing itself from an alliance that many GM investors were cool to from the start.

GM's money-losing European unit has been a key focus for investors since the automaker went public again in the fall of 2010 following a bankruptcy reorganization and a $49.5-billion government bailout. In November 2011, GM Chief Executive Dan Akerson charged Girsky with overhauling the European operations, after GM withdrew plans to sell Opel. � In July, GM reported a second-quarter operating loss in Europe of $110 million, almost one-third smaller than analysts had expected as the Detroit company aggressively cut costs. It lost $1.8 billion in the region last year, but through the first half of this year had pared the losses to $285 million.

Morgan Stanley analyst Adam Jonas said at the time that GM's improvement in financial performance in Europe was two years ahead of his expectations. GM has said it is targeting a return to break-even results there by mid-decade.

In September, Opel Chief Executive Karl-Thomas Neumann, hired earlier this year to run GM Europe, was cautiously upbeat: "We've seen the first little light at the end of the tunnel. No one here is expecting any wonders to happen, but I'm relatively confident that we've reached the bottom."

(Editing by Andrew Hay)

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