Peugeot Steers Opel Into Electric Cars -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 10, 2017).

RÜSSELSHEIM, Germany -- The maker of Peugeot on Thursday unveiled a sweeping restructuring plan for its Opel and Vauxhall units aimed at pushing into electric cars and finally turning a profit at the recently acquired brands within two years.

The overhaul marks the next step in the turnaround for PSA Group, which also manufactures the Citroën brand. The French car maker was rescued from near bankruptcy in 2013 through a bailout from the French government and Chinese state-owned Dongfeng Motors.

Over the past three years, PSA has become one of Europe's most profitable companies as Chief Executive Carlos Tavares has tried to build Peugeot into a global competitor to Volkswagen AG, General Motors Co. and Toyota Motors Co.

Peugeot acquired Opel and its British unit Vauxhall from GM in August for $2.2 billion, after GM threw in the towel following years of losses and failed attempts to wean them back to health.

"Over the past 15 years this company has lost more than $10 billion. This company has cut more than 30,000 jobs. This is a fact. We face a dramatic situation," Mr. Tavares told reporters at Opel's headquarters in Rüsselsheim.

If Mr. Tavares succeeds where GM failed, the restructuring could become a watershed for the European auto industry, which still suffers from low profits and overcapacity as growth in European new-car sales slows, and transform Peugeot into a potent rival to Volkswagen.

The restructuring plan, thrashed out in over three months of tense meetings, targets annual savings of EUR1.1 billion ($1.3 billion) and a profit margin of 2% by 2020. By 2026, those targets are forecast to increase to EUR1.7 billion in savings and a 6% profit margin.

Opel's management doesn't plan to achieve the savings through plant closures or mass layoffs, said Opel Chief Executive Michael Lohscheller. He said labor costs needed to come down, but that could be achieved through early retirement and other measures, declining to elaborate on any details.

Mr. Tavares is aiming to nurse Opel and Vauxhall back to profit by accelerating plans to shift production to the French car maker's technology, allowing the larger car group to cut costs by building Peugeot, Citroen, Opel and Vauxhall models with the same equipment and parts.

Mr. Lohscheller said savings would be achieved through long-overdue streamlining "just like PSA did" that includes reducing the number of engine groups to four from 10 and cutting the model technology platforms to two from nine.

Opel is targeting substantial savings in manufacturing, purchasing, and management, aiming to reduce costs per car by EUR700 by 2020 with the aim of reducing the break-even point to the sale of 800,000 cars. The executives didn't say where break-even is now.

Producing Opel and Vauxhall models on Peugeot technology will help cut the number of components used by half. Opel isn't planning to shut any plants, but it will reduce the size of their manufacturing operations by 25% and will boost capacity usage in Germany by moving production from South Korea.

Until now, Opel has only had one electric vehicle, the Ampera-E. Without additional electric-car models, Opel has been on a trajectory to exceed European greenhouse-gas emission targets in 2020. Under the new plan, Opel will begin churning out electric and hybrid versions of its models. Every model the company makes will have an electric version by 2024.

"They were able to rebuild the product planning in a short period of time to put the CO2 strategy back on track," Mr. Tavares said.

Under GM's leadership, Opel neither exported its products nor expanded into other markets where GM was present. That will also change under Peugeot's tutelage. Mr. Lohscheller said Opel has identified up to 20 markets that the company plans to enter in the coming years. He declined to elaborate much, but cited Argentina, Saudi Arabia and Taiwan.

Mr. Tavares's best argument for the potential success of his plans for Opel is his record at Peugeot. When he began in 2014, Peugeot's factories were working well below capacity and bleeding cash. Last month, he said, Peugeot's factories worked at 130% capacity.

Opel is the next steppingstone for Mr. Tavares to achieve his global ambition.

"Being a strong champion in Europe gives us a very strong basis from which we can leverage more profitable growth overseas," he said. "You cannot be a strong global leader if you are not strong in your home market."

--Max Bernhard contributed to this article.

Write to William Boston at william.boston@wsj.com

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November 10, 2017 02:47 ET (07:47 GMT)