Opel Targets Profitability by 2020 -- Update

By Max Bernhard Features Dow Jones Newswires

German car maker Opel said Thursday that it plans to return to profitability by 2020, but will refrain from plant closures or forced layoffs.

Continue Reading Below

The company, acquired by Peugeot SA (UG.FR) in August, said it would create a "profitable business model whatever the headwinds may be." By 2020, it expects to have positive operational free cash flow and an automotive-recurring operating margin of 2%, rising to 6% by 2026.

Peugeot bought Opel from General Motors Co. (GM) earlier this year. Since then Peugeot and Opel managers have been working on a restructuring plan for the German car maker, which hasn't been profitable since 1999.

Opel Chief Executive Michael Lohscheller said that the "status quo is not an option," and the company would seek to decrease costs in all areas.

Peugeot itself has proven it can return to profit, and there was no reason that Opel wouldn't be able to deliver, said Mr. Lohscheller. To return to profitability, Opel plans to reduce its break-even point--the number of cars sold at which it starts making a profit--to 800,000 vehicles.

In a call with journalists, Mr. Lohscheller said the current break-even point was "absolutely too high," but didn't specify a number.

Continue Reading Below

Opel said it aims to move the company toward the industry benchmark in terms of its labor-cost-to-revenue ratio by reducing complexity. The company said it intends to maintain all plants and refrain from making forced layoffs in Europe. Instead, it will implement new working-time concepts, voluntary-leave programs and early-retirement plans.

Opel said efforts to cut costs would be implemented in a "responsible and thoughtful" way and the company is in talks with major unions. In October, Opel said it would eliminate up to 400 jobs at its Vauxhall Ellesmere Port plant in the U.K.

The number of platforms Opel uses for its cars will be cut to two from nine by 2024, and the number of powertrains to 4 from 10, it said. Its Ruesselsheim site will become a research and development center for the Peugeot group.

Opel plans to gradually switch to Peugeot's technology and power units, rather than GM's, by 2024 at the latest. It expects annual synergies for the Peugeot group of 1.1 billion euros ($1.3 billion) by 2020 and EUR1.7 billion by 2026.

As part of the strategy, Opel will offer electrified versions of all its passenger vehicles--either as battery electric cars or plug-in hybrid cars--by 2024. The company has aimed to put four electrified cars on the market by 2020. Opel also said it plans to enter more than 20 new export markets and double its overseas sales by 2022.

Write to Max Bernhard at Max.Bernhard@dowjones.com; @mxbernhard

(END) Dow Jones Newswires

November 09, 2017 05:14 ET (10:14 GMT)