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Opel on track to achieve turnaround, GM says

General Motors says troubled Opel/Vauxhall unit is on track to achieve a turnaround despite headwinds from Russia.

GM said on Thursday that third-quarter losses at its European operations, which mainly comprise Opel and British sister brand Vauxhall, widened to $387 million from a $238 million loss in the previous year’s period. This was due largely to Russia, where the company booked $194 million in write-downs, and includes about $100 million in losses related to currency effects that likely reflected the drop in the value of the Russian ruble.

Analysts often focus on cash-related profits and losses and underlying earnings quality, which strips out these kind of hits to the income statement. Adjusted for these charges, Opel’s operating loss may have even come in below $100 million.

Brian Johnson, an analyst at Barclays Capital, said Opel is heading toward breakeven. “Backing out the losses from Russia, partly from the one-off charges and other related headwinds and partly from a depreciation in the ruble, Opel/Vauxhall looks to have been close to breakeven for the quarter.”

Johnson said the success of Opel’s new models, the Mokka subcompact SUV and Adam minicar, “look to have stabilized overall net pricing.”

Metzler Bank analyst Juergen Pieper was more cautious. “Opel is moving in the right direction, but it still has a long way to go, so it’s still too early to speak of a turnaround,” he said.

GM aims to to return Opel to profit in Europe in 2016. Chief Financial Officer Chuck Stevens said the company’s European business, excluding Russia and restructuring costs, “is actually improving” from better cost controls and improved sales from newly launched products.

“The Opel brand is starting to improve. Our [market] share is up,” he said. “We expect that to continue,” Stevens told analysts Thursday.

Opel/Vauxhall vehicle sales in the EU and EFTA markets increased by 2 percent to 253,000 in the third quarter in a market up 5 percent. Through September the division’s EU and EFTA sales rose 8 percent to 683,797 vehicles in a market up 6 percent, according to industry association ACEA.

The unit’s market share at 6.9 percent gained a percentage point. Opel’s vehicle sales in Russia through September fell 21 percent to 60,045 in a market down 13 percent, according to the Moscow-based Association of European Businesses. GM transferred its Russia operations into its European unit from its international division in January.

Opel will benefit from the upcoming launch of its Corsa subcompact, its best-selling model in Europe. The new-generation Corsa will be available throughout Europe by the end of January.

The company says it already has received more than 30,000 pre-orders. “It’s an important building block of our product offensive that will secure us a considerably higher market share in the coming years,” Opel sales chief Peter Christian Kuespert said in a statement on Oct 21.

Metzler Bank’s Pieper said the launch of the next Astra compact, the brand’s No. 2 seller in Europe, will be more important to future earnings than niche models such as the Adam. The Astra was never as weak in the market as it is now, he said. “It used to be the No. 2 in Germany, so far this year it’s not even in the top five.”

The Astra’s European sales fell 9 percent to 121,950 through August, according to researchers at JATO Dynamics. The new generation is due next year.