Adam Opel AG - Return to Red Ink, Late 1990s and Early 2000s

Return to Red Ink, Late 1990s and Early 2000s

Opel ran into serious and widespread problems in the late 1990s. One aspect of GM's global strategy was designing models that could be sold in both the United States and Europe, a strategy that sometimes backfired. For example, a team designing a new minivan for the two markets included only a small number of German engineers from Opel who felt they had little input into the final model design. The resulting Opel Sintra, introduced in 1997, was designed primarily for the U.S. market and was unable to stand up to the tougher crash tests conducted in Europe. German reviews of the car were highly critical of its safety, which contributed to a growing view among European car buyers that Opel models were of poor quality. Slow sales of Sintra forced the discontinuation of the minivan after just two years.

Meanwhile, production snafus delayed the launch of a new version of the Astra for six months, from late 1997 to early 1998. Although the Astra, which was eventually available in several styles, including a coupe and a convertible called the Astra Cabrio, soon became GM's best-selling car in Europe, its launch delay contributed to a net loss for Opel in 1997 of DM 228 million ($139.1 million). Opel posted an even larger loss in 1998, a year in which the company inaugurated a new plant in Gliwice, Poland, where production of Astras began.

The Sintra fiasco and other problems created the grounds for the rising frustration felt among Opel's German executives and engineers. GM further ruffled feathers at its German subsidiary through a series of changes at the top. In mid-1998 Herman, a popular leader, was sent off to Moscow to head up GM operations in Russia and the markets of the former Soviet Union. Replacing him as Opel chairman was Gary Cowger, who had led a turnaround effort at GM de Mexico. Just four months later, however, GM officials decided they needed Cowger in the United States to take over the firm's troubled North American labor relations. Robert Hendry, who was currently completing a turnaround of Saab Automobile AB, GM's Swedish affiliate, was then named to replace Cowger.

The Hendry era started off with high hopes, with Opel attempting to revitalize its brand with the introduction of several-new models. During 1999 the company debuted the Zafira, a seven-seat minivan based on the Astra that became a hit with buyers. The following year the new plant in Poland began production of the Agila, a microvan based on the Suzuki Wagon R that was developed through an alliance with Suzuki Motor Corporation, a Japanese automaker affiliated with GM. The Agila was designed specifically for the European market, as was the Speedster, a two-seat roadster that also rolled off the assembly line for the first time in 2000. Unfortunately, Opel was hit hard by a prolonged decline in the German car market, and its domestic sales were even worse than the industry overall, resulting in a decline of the firm's German market share from 13.8 percent to 12.2 percent during 2000. That year, Opel posted an even larger operating loss of DM 982 million ($463 million).

Another key initiative of Hendry's was to replace Opel's aging flagship assembly plant at its home base in Rüsselsheim. Opel in 1999 began building a new state-of-the-art plant immediately adjacent to the old plant. It was conceived of as a "lean production" facility that would require 40 percent fewer workers to produce the same number of models annually. The plant opened in early 2002 with yearly production capacity of 270,000 vehicles. Hendry, however, was not on hand for the opening ceremonies. Early in 2001 Hendry resigned, having failed to deliver on his promises to return Opel to profitability by 2000 and to grow the company's domestic market share. Although Hendry had gained from GM a greater measure of independence for Opel, the supervisory board at the German automaker wanted even more freedom, leading to much infighting, some of which became public—further tarnishing the Opel image.

Adam Opel AG's new chairman was Carl-Peter Forster, a former production chief and board member at German luxury carmaker Bayerische Motoren Werke AG and a German who grew up in the United Kingdom. Forster launched a turnaround effort dubbed Project Olympia that emphasized profitability over market share and was expected to cost more than EUR 1 billion (the name was taken from the old Opel model). Opel cut its production capacity by 15 percent without closing any plants and made reductions in the workforce through attrition. To revitalize the brand and overcome the general perception that its models were boring and lacking in quality, plans were made to completely overhaul the product lineup between 2002 and 2006. Coming first off the assembly line in 2002 (at the brand new Rüsselsheim factory) was a redesigned version of the Vectra sedan. This was followed in the spring of 2003 by the Meriva, a small minivan, and the Signum, an upscale five-door hatchback, based on the Vectra, that featured flexible rear seating. Later in 2003 sales of a Vectra station wagon began. One of the key new products, slated to be introduced in 2004, was the latest redesign of the Astra, which ranked as Opel's top-selling car. Opel also planned to introduce the Tigra in 2004, a popularpriced two-passenger roadster that was based on the Corsa subcompact. Although a complete turnaround for Opel was likely to be years away, losses were narrowing and these new models showed early promise.