Vectra replacement draws battle lines

By Jorn Madslien
Business reporter, BBC News, London motor show

When the London motor show opens to the public, Vauxhall's Vectra-replacement may not top many people's list of must-see cars.

The Vauxhall/Opel Insignia is making its debut in London

Yet for those working in the automotive industry, the Insignia is crucial.

"In terms of new model launches, the most important by far [at this show] is the world debut of the new Insignia," observes Rebecca Wright, automotive industry analyst with Global Insight.

Insignia is entering a shrinking market segment, currently dominated by the Ford Mondeo.

Sales of such "ordinary" family saloons have come down dramatically in the last decade as drivers have switched to people carriers, sports utility vehicles and crossovers - models that are themselves falling out of favour with consumers as high fuel prices and concerns about emissions push drivers towards smaller cars.

Sales in Western Europe

1998 - 370,000 (Vectra)

2003 - 150,000 (Vectra)

2007 - 100,000 (Vectra)

2009 - 127,000 (Insignia, prediction)

Source: Global Insight

London Motor Show in pictures

Nevertheless, the segment is not small.

GM expects to sell 200,000 Vauxhall/Opel Insignias in 2009, a third of which will go to rapidly emerging car markets in Eastern Europe and Russia.

Hence, it was vital for the company to come up with a competitive model for this market segment to replace the ageing Vectra.

"In Britain, the Vectra - despite refinements and improvements - has long had a rather lacklustre image," according to Dave Leggett, of industry website just-auto.

Long road ahead

Insignia's global launch comes soon after Vauxhall/Opel's mothership, General Motors, presented a $10bn (�5bn) cost-cutting plan.

The transition is going to be difficult

Efraim Levy, Standard & Poor's

GM unveils job and cost cut plans

Analysts say the plan should help the troubled automotive group narrowly escape bankruptcy, just two months before it celebrates its centenary in September.

Investors also welcomed the plan. GM's share price, which had been sliding steadily from more than $40 last autumn to a low of $8.81 a share early this month, has bounced back over the last week to close at $14.58 a share on Wednesday.

But the analysts also warn that before GM recovers it will have to invest vast sums to develop less polluting, more economical and smaller cars to replace gas-guzzlers that consumers are currently walking away from.

"They need to make a transition, but that isn't going to happen overnight, and the transition is going to be difficult," says Standard & Poor's equity analyst Efraim Levy.

European impact

"GM will face a sizable cash burn until it gets this part of the equation right," agrees Moody's analyst Bruce Clark.

In Europe, GM is also facing major challenges that cannot be sorted by Insignia alone.

At the show, the Vauxhall stand is flanked by sister-companies Hummer, Cadillac and Saab - all marques that are struggling.

Hence, although last week's restructuring plan focused mainly on GM's US operations - where Hummer is for sale - it is likely that the belt-tightening will be felt in Europe as well.

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