VZCZCXRO6422
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFT #0320/01 0240633
ZNR UUUUU ZZH
R 240633Z JAN 07
FM AMCONSUL FRANKFURT
TO RUEHC/SECSTATE WASHDC 9198
INFO RUCNFRG/FRG COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 FRANKFURT 000320 
 
SIPDIS 
 
DEPARTMENT ALSO FOR DRL/IL 
USDOL FOR ILAB 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EIND ELAB ECON GM
SUBJECT: Opel/GM Europe Upswing, Return to the U.S. Market 
 
Ref: A) 2006 Frankfurt 7767, B) 2004 Frankfurt 8977 
 
¶1.  SUMMARY: Led by German subsidiary Opel, General Motors (GM) 
Europe posted a profit of $186 million in 2006 (through September) 
en route to its projected first full-year profit in Europe since 
¶1999.  Opel in particular has reason to celebrate since it will soon 
produce more Saab/Vauxhall models and has re-entered the North 
American market under the Saturn name (the first large-scale Opel 
exports to the U.S. since the 1970s).  GM's recent success in Europe 
is remarkable given its difficulties at home and the headwinds of 
the European car market (which remains essentially flat).  The 
turnaround is good news for Opel development and production 
facilities -- and for former Opel CEO Carl-Peter Forster, likely 
headed to Detroit -- but some question whether GM Europe can sustain 
its positive momentum. 
 
Opel Re-emerging After Job Cuts, Improved Quality 
-- - - - - - - - - - - - - - - - - - - - - - - - 
 
¶2.  The lean years at Opel (headquartered in Ruesselsheim near 
Frankfurt) have come to an end for now.  Opel CEO Hans Demant 
recently made it official that starting in 2008, Opel's flagship 
plant in Ruesselsheim (GM's most modern production facility) will 
produce the new GM generation of mid-sized cars to be sold under 
various brands.  By 2008, Ruesselsheim will supply the full 
production of mid-sized cars in Europe including Saab and Vauxhall. 
Until then, capacity utilization remains at only 60% (the plant will 
produce 142,000 units in 2007 out of a capacity of 180,000).  Staff 
will cope by working part-time, and Opel will expand marketing in an 
attempt to boost sales of the mid-sized Vectra and Signum. 
 
¶3. In Opel's newer models -- most recently the redesigned Corsa 
(introduced in October 2006) which has overshot expectations and may 
challenge the VW Polo for leadership in Europe's sub-compact segment 
-- Opel has managed to boost both quality and consumer appeal: 
warranty claims for Opel and sister Vauxhall have declined 70% since 
2000, with warranty costs per vehicle down 36% over the same 
period. 
 
Opel's Return to the North American Market 
- - - - - - - - - - - - - - - - - - - - -- 
 
¶4.  More good news for Opel is GM's decision to sell Opel models in 
North America as fuel-efficient mid-market cars.  In late 2007, 
Saturn USA will begin importing the Opel-made Astra (Saturn already 
offers two other Opel-developed models).  The cars will be supplied 
from Opel's Antwerp plant, slated to produce an extra 20-100,000 
units.  The positive upshot for Germany is that the extra production 
will push Antwerp to its capacity limit, meaning the Opel plant in 
Bochum will produce more Astras.  Exports will start in mid-2007 (by 
which time the Astra must undergo changes to meet U.S. 
specifications).  It will be sold as the Saturn Astra, which expects 
to improve the "European" image of its brand.  At the recent Detroit 
Auto Show, the new Saturn Aura (a re-branded Opel Vectra) was named 
North American "Car of the Year" (beating out for instance the Camry 
and Accord). 
 
¶5. GM Europe President Carl-Peter Forster called the Opel-Saturn 
partnership a first step towards closer transatlantic cooperation 
with GM.  In the future, GM will develop a number of models on 
common U.S./European platforms, meaning it could also export 
mid-sized cars from Europe to the U.S. (GM can export profitably 
from Ruesselsheim for quantities up to 100,000 units annually). 
 
Is the European Turnaround Sustainable Without More Cuts? 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶6.  In 2006, GM agreed to a "production guarantee" through 2012 for 
the brandnames Opel and Saab, covering 67,000 workers and seven 
plants in Western Europe (among them German facilities in 
Ruesselsheim, Bochum, and Eisenach).  The guarantee follows a deep 
restructuring plan (launched in 2004) in which GM shed 12,000 jobs 
in Europe (10,000 in Germany) but managed to increase its profit by 
EUR 500 per vehicle sold in Europe.  The turnaround is also likely 
to bear fruit for GM Europe head Carl-Peter Forster (also de facto 
head of Opel), whom recent press reports have named as the likely 
next head of development at GM headquarters in Detroit.  To the 
extent that Forster's star continues to rise, it could bolster 
U.S.-European integration within the company and the introduction of 
"European" models. 
 
¶7.  Analysts are mixed on GM Europe's longer-term future -- given a 
flat market and GM's problems at home.  While many say publicly that 
Opel has "turned the corner" (Juergen Pieper, auto analyst at 
Frankfurt investment bank Metzler), recent positive developments do 
not convince Ferdinand Dudenhoeffer, head of B&D Forecast (an 
automotive consultancy) and perhaps Germany's leading industry 
 
FRANKFURT 00000320  002 OF 002 
 
 
expert.  Dudenhoeffer has said publicly that GM's European plants 
are still threatened since capacity utilization is likely to decline 
again starting in 2009.  The European car market remains essentially 
flat despite positive economic figures, with total sales up only 
0.4% in the first nine months of 2006.  According to Dudenhoeffer, 
GM will have to re-consolidate its European facilities in 2010 at 
the latest, meaning the carmaker may not be able to keep its current 
job guarantee through 2012 -- and another round of painful cuts -- 
unless Opel can continue to gain market share at the expense of 
European competitors.  For the time being, Opel may represent a 
modest success story for General Motors and this region. 
 
¶8.  This message was coordinated with Embassy Berlin. 
 
POWELL