US embassy cable - 04FRANKFURT6238

UNCLAS FRANKFURT 006238 
 
SIPDIS 
 
USDOC FOR COMMERCIAL SERVICE 
 
E.O. 12958: N/A 
TAGS: EIND, ELAB, ECON, ETRD, ELTN, GM 
SUBJECT: Troubled GM/Opel Signals Further Cutbacks as CEO 
Forster Moves On 
 
Ref: 03 Frankfurt 07910 
 
Sensitive but unclassified  not for internet distribution 
 
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. 
 
BODDE