Adam Opel AG - Turnaround in the Early 1990s

Turnaround in the Early 1990s

Louis R. Hughes followed Dr. Horst Herke as chairman of Opel in 1989. Hughes told Fortune's Richard S. Teitelbaum that the reunification of Germany that same year was "the opportunity of the century." Opel moved quickly to take advantage of the changed situation, negotiating the purchase of an automobile plant in the East German town of Eisenach. Hughes set out to transform the Eisenach facility from a run-down plant filled with apathetic workers into a model of productivity, making Opel the former East Germany's market leader in the process. Hughes implemented modern management programs and invested DM 1 billion in automation. Production increased from about 60,000 Wartburgs under the communists to 160,000 Opel Corsas and Vectras by the mid-1990s. In 1995, the New York Times noted that "Eisenach has been rated as the most efficient plant in Europe, with production of 59.3 cars a worker each year."

Hughes was promoted to executive vice-president of General Motors (Europe) AG that year, later advancing to president of that division as well as president of GM's International Operations. The Opel chairmanship went to David Herman, a 15-year veteran of GM's European and South American operations.

After record-setting profits in 1991 and benchmark sales in 1992, Herman found himself faced with a recession-induced loss of $300 million in 1993, spurring a new phase of restructuring. By the spring of 1995, he had cut Opel's overall workforce by 19 percent, or 11,000 workers. New employee relations programs helped slash absenteeism by 18 percent, while wage and work rule concessions from labor unions helped free capital for multibillion-dollar capital improvements. Opel bounced back to a $198 million profit in 1994.

But the news at Opel was not all good. In the middle of 1995, a kickback scandal involving dozens of employees came to light. The scheme involved suppliers offering cash and gifts to Opel employees and executives in exchange for favorable consideration in contract negotiations. Three managers resigned amidst the investigation in 1995, and another may have committed suicide over the fraud. At the same time, Opel had accused its main German rival, Volkswagen AG, of industrial spying in a case centering on José Ignacio López de Arriortúa. López, famed as a cost-cutter while at GM/Opel, was accused of stealing secret corporate documents from Opel when he was lured away to Volkswagen in 1993. Without admitting guilt, Volkswagen settled with GM in 1997, when the former agreed to pay the latter $100 million cash and to purchase $1 billion in auto parts from General Motors by the year 2004.

In the meantime, Opel continued in its role as the spearhead of GM's international growth, pursuing European expansion and building assembly operations in Asia, South America, and Africa. In 1996 the company added the Cadillac Catera to its European lineup—which then included the Astra compact, the Omega large sedan, Vectra midsized sedan, and the award-winning Corsa subcompact. While not surpassing records set in 1992, sales rose from DM 25.9 billion in 1995 ($18 billion) to DM 28.3 billion ($18.4 billion) in 1996, while net slid from DM 363 million ($252.8 million) to DM 314 million ($203.9 million).