GM aids Opel by booking Russian profits at loss-making unit

Reuters

* GM Europe wins back Russia from GM Asia starting January

* Move could help GM Europe return to profit sooner

* Victory for GM Europe head Neumann

* Boost for European Opel and Vauxhall brands and workforce

By Christiaan Hetzner

FRANKFURT, Oct 18 (Reuters) - General Motors hasdecided to put its Russian operations back under the control ofits European wing - a victory for GM Europe's new president anda signal of support for a workforce that has endured massive jobcuts in the hunt for profitability.

GM made a turnaround of its European business a top priorityafter racking up around $18 billion in losses over the past 12years, and is investing billions more despite calls from MorganStanley to sell Opel and its UK sister Vauxhall at virtually anycost.

Russia is Opel's only major growth region - a lucrativegeography where margin-eroding discounts are far less commonthan in a western European market set to plumb lows not seensince 1993.

From January, General Motors International Operations(GMIO), based in Shanghai, China, will hand the business back toGM Europe (GME) after three years.

Not only will Opel's own sales in Russia be consolidated atGME, so will those of Chevrolet, which sells more than twice asmany cars in Russia, and GM's premium brand, Cadillac.

"This will allow GM Europe to emerge more quickly from thered," said Ferdinand Dudenhoeffer, head of the CAR automotiveresearch institute at the University of Duisburg-Essen.

He said this suggested that new Opel chief executive and GMEpresident Karl-Thomas Neumann, who came in March from Volkswagen, had won out in a battle for influence within GM.

The move could also help Neumann to shore up support amonghis European workforce, which has endured tens of thousands ofjob cuts since 2000 - more than half of all staff - and willsuffer the third closure of a car plant come 2014.

"Profits that so far were booked in Asia-Pacific are nowending up in Europe. They are creating the appearance ofprogress with the restructuring of Opel," said Dudenhoeffer.

FROM BOOM TO BUST

Five years ago, Opel was an up and coming brand in Russia, selling almost 100,000 cars - twice as many as Volkswagen's VWbrand.

But the bankruptcy of the GM group in 2009 and the abortedsale of Opel to a consortium that included Russia's state-ownedSberbank sent sales that year crashing by two-thirds.

GME then surrendered responsibility for the Russian marketto GMIO in 2010. The loss was heavily criticised at the time byOpel's labour leaders, who felt GME management had given up akey profit centre in exchange for personal advancement.

In the meantime, VW has overtaken Opel in Russia, movingnearly 165,000 cars last year and outselling it two to one.However, GM's Chevrolet sold over 205,000 cars while Cadillacmanaged around 2,000.

"This is the right decision at the right time," Neumannsaid, noting that Russia was still the third-largest market forOpel/Vauxhall after the UK and Germany.

"All forecasts indicate that Russia will become the biggestEuropean car market. Opel has a strong image in Russia and wewant to significantly expand our share of the market."

Opel has hampered its chances of growth by largely stayingout of major markets such as China and instead confining itsoperations to Europe, home to all of its factories, so as not tocompete with other GM brands.

For example, GM's Buick builds the Opel Insignia in China,badges it as a Buick Regal, and books the profits, leaving Opelwith only niche products to sell, such as its Astra GTC coupe.As a result, Opel sold just 4,500 vehicles last year in theworld's largest car market.

A main reason why other mass-market rivals such asVolkswagen are profitable is their ability to compensate forweak European business with rising sales in emerging marketssuch as China, Brazil and India.

By comparison, Opel pulled out of Australia in August,leaving it with only a few, small non-European export marketssuch as Chile, Singapore and the United Arab Emirates.

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