Opel's Unexpected Turn

Opel's Unexpected Turn
GM Keeps Its European Brand, But Troubles are Far From Over
November 05, 2009
/ By Paul Horrell

2010 Opel Astra Front Three Quarter 2
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At just about the last minute of the eleventh hour, GM has decided not to sell its European Division, Opel. Well, it had always seemed absurd to sell. Many conspiracy theorists have speculated that this week's outcome was planned all along: GM was just playing brinkmanship to get loans in place from European Governments and concessions from the unions.

It now seems the reason wasn't so sinister.

Back in the spring, Opel was losing money fast, and at the time, GM -- mired in its own financial mess -- couldn't afford to prop it up. In any case, visibly sending domestic tax dollars to a foreign unit would have gone against very public promises by Washington.

But GM came out of bankruptcy in July. At that point it could have done the right thing and saved Opel. Instead it has waited until now. Partly that's because the economic conditions have turned in its favor. GM is running ahead of its plan, and Opel isn't doing so badly either.

But there's another reason for the reversal.

Opel Ampera Front Three Quarters View
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The Opel Ampera will bring the Volt's technology to Europe.
A fascinating timeline emerged from John Smith, who had led the sale negotiations from GM's side. On August 1, GM got a new board, with seven new members, some from outside the auto industry. Smith says the board looked at the money Opel was losing, and the cost of restructuring, and considered the job too hard, so the decision was made to continue with the sale plan.

But Opel was always integral to GM's operations. Since GM product development went global in about 2005, Opel is the global center for compact and medium car platforms. It developed the platform for the Chevy Cruze (which, adapted, goes under the Volt too), the Buick Lacrosse and new Regal. It is the center for U.S.-relevant fuel-efficient four-cylinder engines, too. And by the same token, Ford is pinning its revival on cars designed by its own European division.

Smith implied -- but didn't quite say -- that the neophytes on GM's board just didn't comprehend the need for GM to retain this global strategy. Nor could they see how hard it would be to untangle the intellectual property, the component manufacture, the purchasing, of Opel from GM. Or hard it would be to replace that engineering expertise. Now the board has learned.

Read more: http://www.motortrend.com/features/auto_news/2009/112_0911_gm_keeps_opel/index.html#ixzz0X5QIWcEX
True, GM had planned to keep 35 percent of Opel, and deal with the Europeans as an 'alliance'. But that would have been difficult, given the proposed buyer of the majority stake.

The deal envisaged selling some 55 percent of Opel to a consortium led by supplier Magna. Half the money for that bid was to have come from Sberbank, the Russian state bank, with a view to starting a modern Russian carmaking industry.

GM has a strong Chevy footprint in Russia. If Russian-built Opels, using technology developed for Chevys, were to have hit the market there, there would have been tense conversations between the parties. Or as Smith tactfully put it, 'We would have had an energy-intensive relationship, and likely no continuous alignment on product development or purchasing.'

But hard times lie ahead for Opel workers. Back in spring, when Opel was in its worst financial crisis, GM devised an Opel Viability Plan. It entailed cutting 10,000 off the workforce of 55,000 in Europe, closing three of its nine plants and making structural cost cuts of 30 percent.

2010 Opel Astra Front
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The new Astra may also end up in Buick dealers in some form.
That basic plan was never queried by either of the bidders, RHJI or the Magna consortium. They planned to do very similar things: "There was very little daylight" between GM's restructuring plan and theirs, says Smith. But crucially, Magna said it would save German jobs at the expense of those in Britain, Spain and Poland, and so the German Government weighed in with support for that bid.

GM now needs to convince several Governments all over again of the need to restructure Opel, and to get some loans from them to do it. Smith remains confident he can do so.

But he might have trouble with the Germans, whose Economy Minister Rainer Bruederle said after the reversal of the sale, "The behavior of General Motors towards Germany is totally unacceptable." Other recent reports indicate the Russians are also livid over GM's decision, which could possibly impact the automaker's operations in the country. So while keeping Opel may indeed turn out to be the right move in the long run, GM must start mending fences quickly, or it could have yet another intractable mess on its hands.

Read more: http://www.motortrend.com/features/auto_news/2009/112_0911_gm_keeps_opel/restructuring.html#ixzz0X5QNASH6