PSA does to Opel what GM failed to do in 20 years

Paris

OPEL, the German carmaker that posted almost two decades of losses under General Motors ownership, is making money again.

PSA Group, the French manufacturer of the Peugeot, Citroen and DS nameplates that acquired the brand a year ago has been aggressively cutting costs and eliminating jobs.

On Tuesday, PSA revealed that Opel made 502 million euros (S$802 million) of profit during the first six months of 2018 compared with a loss a year earlier. The shares surged as much as 13 per cent, the most in six years.

"This is simply the quickest turnaround I have seen in the auto industry in many years," JP Morgan analyst Jose Asumendi wrote in a note.

Since buying the ailing brand, PSA has overhauled Opel and British sister brand Vauxhall, slashing costs of developing new models by as much as 50 per cent through sharing technology with the French parent.

The effort also meant resolving a dispute with German labour representatives that will help to reduce spending and clear the way for PSA to allocate investments in the country where most of the brand's workforce is based. The agreement will eliminate 3,700 jobs from Opel's German workforce of about 20,000.

After General Motors sold Opel last year, PSA got to work quickly using a strategy that largely mirrors its own successful restructuring since a 2014 bailout, which transformed the former industry laggard into one of Europe's most profitable mass-market carmakers. Cutting unnecessary expenses and slashing vehicle complexity were key drivers behind the deep cutbacks under PSA chief executive officer Carlos Tavares.

"We're seeing the first signs of this successful turnaround," Mr Tavares told Bloomberg TV. "Each employee is contributing and I'm very happy to see the results with all of our stakeholders."

For the group, recurring operating profit jumped 48 per cent in the first half of the year to 3.02 billion euros as higher sales and popular models like the Peugeot 5008 sport utility vehicles helped offset higher raw materials costs and currency swings, the company said in a statement. That's better than a forecast of three analysts complied by Bloomberg.

The automotive recurring operating margin reached 8.5 per cent in the period for the Peugeot, Citroen and DS nameplates, while it stood at 5 per cent for Opel. The carmaker reiterated it's targeting an automotive margin of over 6 per cent by 2021, excluding Opel.

"Opel-Vauxhall has started to reveal its full potential for performance thanks to the strong involvement of its teams," chief financial officer Jean-Baptiste de Chatillon said on Tuesday.

Just as it is bolstered by strong car demand in Europe, PSA is facing difficulties in other markets. It halted its operations in Iran - its biggest market outside France - in May to comply with US sanctions, hoping for the French government to negotiate a waiver that US authorities refused to grant. BLOOMBERG