Category: GM Europe
Posted by Neil Winton on Wed, Nov 4, 2009 at 10:03 AMGM decision to hang on to Opel pressures European competition
GM's decision to retain ownership of its European subsidiaries and prop them up will put pressure on other European manufacturers suffering through the recession, but the move was welcomed by experts who see Opel-Vauxhall as crucial to the U.S. parent companies future.
Magna and its Russian allies hadn't planned to "buy" Opel-Vauxhall. They had agreed in principle to take on the company and slim it down, with the help of a 4.5 billion euro ($6.6 billion) loan mainly from Germany to finance restructuring. Britain, Belgium and Spain, which also have Opel-Vauxhall plants, had planned to contribute.
GM's latest plan calls for a three billion euro ($4.4 billion) shakeup plan, and that's all we know so far. GM has agreed to pay back the 1.5 billion euro ($2.2 billion) bridging loan from Germany.
GM Europe in the form of Opel, its British offshoot Vauxhall, and the Swedish subsidiary Saab, lost about $1.6 billion in 2008, which could rise to $3 billion this year. (Saab has been offloaded, although even that deal hasn't yet been signed, sealed and delivered).
Saving Opel-Vauxhall may be good for its employees, but it must ring out a stark warning to other loss-making European's - mainly Renault and Peugeot-Citroen of France - which have shared about 6 billion euros ($8.9 billion) in cheap state loans. Fiat of Italy (now with a Chrysler affiliate) has been making a little money, but it will also come under pressure.
With huge overcapacity in Europe - upward of 25 percent - the fallout from the recession should have seen the least healthy auto manufacturers die, leaving some richer pickings for the survivors.
Citigroup Global Markets auto analyst John Lawson put it this way.
"The Opel decision cancels the only meaningful European restructuring of this downturn and leaves three of Europe's volume makers (Renault, Peugeot, Fiat) in receipt of major direct government cash," Lawson said.
Last week, the three big reasons why the Magna deal made no sense were:
1.Why would GM want to be part of a plan to move output and resources to Russia, which it had already targeted in a big way with its Daewoo/South Korea/Chevrolet business?
2.The Magna plan promised less pain in the form of firings and plant closures in Germany in the short term, but long-term, much of Opel's production in Germany looked set to move east.
3. Possibly the most important reason: Why would GM give up control over an Opel-Vauxhall organisation which produces small, fuel-efficient cars, after the Obama administration had brought forward CAFE rules in the U.S. demanding an average 35.5 mpg from 2020 to 2016?
IHS Global Insight analyst Aaron Bragman liked the development.
"From an American perspective, it is not surprising that GM has elected to keep Opel," Bragman said.
"Where GM is going to get the money to fund the Opel restructuring is still something of a mystery, as none of the money it has received from the U.S. government may be used for overseas operations. Some creative accounting may need to be done if it is to reorganize its European operations," Bragman said.
"Opel is a critical piece of GM's global empire, providing as it has the platforms for a number of the company's global vehicles. Losing Opel, and a significant chunk of the European market, was a desperation strategy that GM apparently feels it is secure enough now not to need," he said.
