By on November 11, 2010

Oh, to be a fly on the wall of the GM boardroom:

“Did you see the latest Opel numbers?”

“Jeez! Horrible!”

“What are these clowns thinking? We have an IPO to close.”

“Talk about timing. We should have sold them to the Russians. Who was the moron that cancelled that deal?”

“Whitacre.”

“I hope the next rattlesnake wins.”

Indeed, the news from Rüsselsheim aren’t good, and with the IPO closing this coming week, they could not have come at a more inopportune time.

Opel is up to its eyeballs in losses. “In the third quarter, GM’s losses in Europe were three times as large as in the prior quarter,” reports Automobilwoche [sub]. Opel/Vauxhall’s operative losses amounted to $559m in the third quarter, after only $160m in the second. In the first nine months, Opel/Vauxhall lost $1.2b. Soon, you’ll be talking about real money.

Opel’s Reilly pointed fingers at restructuring costs (yep, it can get expensive to let people go in Europe,  and we have an Antwerp plant to sell you), at currency losses due to a suddenly stronger British Pound (always iffy to produce outside of your currency zone), and at seasonal effects (Europeans unexpectedly took their summer vacations). But remembering the old adage that when you point a finger, three fingers point at yourself, Reilly came back to Jesus and said: “Even if you disregard these effects, we still have a loss. Our expenses are higher than our revenues.”

And that’s the crux, boys and girls. If your expenses exceed your revenues, then you have a problem.

There is no end in sight. 8000 jobs will have to be eliminated – that will cost serious money. To get rid of 2,600 workers in Antwerp, GM had to cough up $532m – a little bit over $200,000 per worker. In Bochum, 1800 jobs will be eliminated. Workers are holding out and refuse the offered six figure golden parachutes in wholesale fashion.

GM offers $140,000 to a 50 year old worker who has been with the company for 24 years, and makes $4,200 per month. The Bochum unions want “significantly more.” Don’t you wish you’d be a 50 year old Bochum Opel worker?

With 8,000 jobs to go and to be paid off, there will be monstrous losses in 2011. Who knows what will happen in 2012.

If it wouldn’t be for Opel, GM would be in  hog heaven. Back home, GM makes money. In China, GM sells more cars than ever.  Everything divvy in South America  and the rest of the world.  If Whitacre would have taken the deal the Germans and Russians had offered,  GM would have reported an EBIT of $2.9b in the 3rd quarter instead of $2.3b – that’s a good chunk of dough. Buyers of stock are looking at future performance, and the cash drain of Opel will have a serious effect on the take from the IPO.

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26 Comments on “What Would GM Be Without Opel? Rich...”


  • avatar
    Tstag

    GM should open a dialog with SAIC about it’s European operations at Longbridge. If Opel/ Vauxhall agreed to share production facilities in Europe with SAIC then it could afford to restructure Opel by transferring the Opel brand name to rights to Vauxhall. Vauxhall command’s the bulk of Opel’s sales anyway (the UK is close to being the largest market for Opel/ Vauxhall cars).

    So by doing this they could centralise everything in the UK where Labour markets are cheaper and use the huge production capactity of Longbridge to reduce head count in Germany. Ah you say but wouldn’t that cost money?

    No just let Opel manufacturing go bust but keep the lights on at the newly seperate Vauxhall. As long as GM owns the tooling and the brand names who cares?

    • 0 avatar
      charly

      Britain may be the biggest market for Opel but it sells more cars outside of Britain than inside of Britain otherwise a strengthening of the pound would be a positive. There is also the issue of accounting. The FWD cars  they sell are engineered by German engineers. Without Opel they couldn’t build competitive cars which is a bit of a requirement for a car company of GM size

  • avatar
    Zykotec

    Without Opel and Vauxhall there would be no GM in Europe. Not sure how the relation to Vauxhall is in this exact situation, but as they make the same cars, I’d expect that Vauxhall and Opel is one package deal? In the long term I think the best thing for GM would be to keep Opel, and have them develop and build Cadillacs for Europe. But that wouldn’t make any sense in GM eyes, as they clearly prefer to let Germans develop cars for Americans and vice versa….

  • avatar
    OldandSlow

    “I hope the next rattlesnake wins.” - Ouch !!!
     
    Unbeknown to the American car buyer – many of GM’s North American car offerings depend on either Daewoo, Holden or Opel/Vauxhall intellectual property.  GM Shanghai will probably have to pitch in – if GM can’t keep Opel/Vauxhall viable.

  • avatar
    NN

    With a loss or sale of Opel, GM would lose significant engineering resources.  All of GM’s future passenger cars would be engineered by GMDAT (i.e. Daewoo), or GM Shanghai.  GMNA has not led engineering on any significant volume car for many years, it has all been outsourced, mainly to Opel (Epsilon–Malibu/Aura/Lacrosse/Regal/Equinox), and increasingly to Daewoo (Aveo/Cruze). Thankfully, there does seem to remain some talent at Holden in Australia, which does most of the RWD GM car platform engineering (Camaro, CTS).
    GM’s Asian engineering centers have gotten better, but still don’t have the proven record of putting out world-class truly competitive platforms that Opel has.  GM’s increasing reliance on their Asian engineering centers is probably designed as a long-term plan to wean themselves of Opel.  But they probably can’t do that quite yet.
     

  • avatar
    Steven02

    GM would be making more money, but not have the development resources to help make cars.  Although, the offerings lately have been too heavy.
     
    Interestingly enough though, GM’s profits were from NA.  GM International didn’t have too much profit.  It basically canceled GM Europe’s losses

    • 0 avatar
      Extra Credit

      I need a quick refresher here, as I fell asleep half way through the whole “too big to fail” episode.

      Is GM making money in North America because they were able to conveniently eliminate most (all?) of their debt and the nasty servicing costs that go along with it, while GM Europe continues to be saddled with the responsibilities for which they committed to their debtors?  Or is GM Europe working from a squeaky clean slate too?

      It could make a difference…

    • 0 avatar
      charly

      It is more that GMNA is making a profit because its engineering costs are paid for by GM Europe

  • avatar
    forraymond

    GMNA is now saving money, not making it.  The money came from from the money that had been promised to the retirees over the last 5 decades.
     
    GMNA has cut retiree benefits in a LARGE way.  If you worked most your life for a company and believed your loyalty, sweat and time would be repaid as promised in your union contract and then when you retired, the company decided it was too expensive to live up to the contract, HOW WOULD YOU FEEL?
     
    GMNA is disgusting.  There should be some executives in jail.

  • avatar
    psarhjinian

    I’m sure Opel would have said the reverse many times over the last decade or so.

    As for selling Opel: GM wanted to hock them to someone with the option to buy them back on the cheap should their experiments with Chevrolet in Europe fail, and to a buyer who would explicitly not compete with them but would allow them to wind down. GM also wanted a unicorn and a free puppy.

    Everyone else who gave a damn wanted Magna to own them. I suspect RHJ’s offer was too good to be true and Whitaker knew it, so better to let Opel die slowly rather than hand a boon to Magna (remember how VW screamed about that? They knew that Opel under Magna would pose a problem because they’d, oh, I don’t know, make real cars) and shoot Chevy Europe in the head, or declare bankruptcy in decidedly-hostile Europe.

    • 0 avatar
      JJ

      Problem with Magna taking over Opel was that Magna would stand to loose a lot a business they had from other manufacturers. For instance, IIRC the BMW X3 and Chrysler 300C AWD among others were made by Magna in Graz and these other manufacturers weren’t be too keen on letting Magna have access to their tech if Magna was to become a ‘direct’ competitor to them.

    • 0 avatar
      Daanii2

      Speaking of Magna, their stock price is at an all-time high. Frank and Belinda Stronach are rolling in the dough. Not being able to buy Chrysler or Opel was probably a blessing in disguise.

    • 0 avatar
      psarhjinian

      Problem with Magna taking over Opel was that Magna would stand to loose a lot a business they had from other manufacturers
       
      I doubt it would have been true: several companies use captive suppliers of their competition without worry of IP theft because, generally, we have rule of law and a kind of mutually-assured destruction.  VW was floating that line that not so much out of concern for their IP (as they could sue Magna any time they liked) but because Opel’s biting the dust would benefit VW greatly and Magna’s buyout would have meant Opel’s continuing to be a competitor.

    • 0 avatar

      You’ve got that right. VW wants Opel dead. Pretty much the whole German car industry (ex Opel and suppliers) wants Opel taken behind the barn and shot. Hence the negation of life support by the government.

      As for squeaky clean: No, they aren’t. Only bankruptcy proceedings of Opel GmbH would have done that. Would also have spared them the enormous restructuring costs. Firing someone in Germany who has worked half his life for you can get VERY expensive. If the company goes bankrupt, no payment.

    • 0 avatar
      Extra Credit

      @Bertel

      Thanks.  That’s what I suspected.  Comparing GMNA to GME is apples and oranges.  Although their road will be infinitely less comfortable, I admire GME for living up to the debt commitments they made.  It’s not always easy to dig yourself out of the hole you dug, but I have more respect for a company that tries than for a company that throws its “partners” into turmoil for its own benefit.

  • avatar
    JJ

    I do think GM will have a tough time getting a meaningful presence on the European market without Opel. Pretty much all of there offerings have failed to make an impact in the last decades, even the products touted to be the best that GM has to offer like the CTS have no chance in our market.

    Now I think the new Cruze hatchback might be the first non-Opel GM offering in a long while that has a good chance of getting some market share, but if I’m not mistaken, it’s on the Opel Astra platform…(or is that vice versa?)

  • avatar
    Robbie

    It’s not so hard to make a profit if every debt you ever had is forgiven all of a sudden. I would have some spare change in my pocket if the bank forgave me my mortgage.
    The Opel people I used to talk to were always telling stories about how GM drained them of every dollar they had, and how much GM was a limiting factor to Opel. Also, the bookkeeping needs to be scrutinized; one wonders if all patents and product development is properly credited to Opel. I suspect that Opel does not want anything more than to start building cars with SAIC, and to be freed of GM.

  • avatar
    John Horner

    GM should stop confusing themselves by trying to sell Cadillacs and Chevrolets in Europe. They should simply get back to the job of building and selling the Opel and Vauxhall brands they already have in place. GM keeps wanting to change the names of things as a way to ignore their past. Yuck.
     

    • 0 avatar
      psarhjinian

      In Opel’s case, this has a lot to do with their “revolt” against GMNA for, well, GMNA’s gross incompetence bordering on malice in managing Opel.  I don’t think a lot of the corporate stiffs handled that well; they’re not used to the colonials getting uppity.

  • avatar
    tparkit

    Here we go again, with more snakeoil about how GM backed away from selling Opel.

    With the evidence of these massive losses, even a TTAC writer ought to be able to finally figure this one out: the deals to sell Opel did not fall through because GM decided to keep Opel.

    The deals fell through because Washington/GM declined to put enough money on the table to induce a “buyer” to take this turkey off of Washington/GM’s hands.

    To understand how a deal might have worked, think Fiat. It was necessary to give Chrysler away to Fiat in order to get rid of it. To dispose of GM would have required that Washington provide guarantees of long-term access to a massive slush of US taxpayer cash (funneled through GM and other channels), sufficient to persuade a “buyer” to step up to solve Washington’s political problem of owning a car company. Unless Washington stepped up, the various European governments declined to participate in bailing out Opel and its employees. Washington didn’t, so the Europeans didn’t.

    Washington did not believe it could sneak a massive offshore funding operation past the jobs-starved US electorate. That — and nothing else — is 100% of the reason why GM still owns Opel.

    • 0 avatar
      Daanii2

      Not true. GM had a buyer for Opel. Magna was willing to buy at the price GM agreed to. GM then pulled out of the deal, as it had the right to do. That’s why the deal fell through.

    • 0 avatar
      tparkit

      Daanii2,
      That was the spin, fabricated to make it look like GM was in a position of strength, and able to make choices. Accordingly, GM claimed that keeping Opel was part of its strategic direction as a global player fielding advanced platforms for a new generation of vehicles.

      Behind the scenes GM was desperate, bleeding cash, and needed to turn that into someone else’s problem. That’s why GM put Opel on the block in the first place — and you are seeing the reality of Opel’s situation in the latest financial reports. The potential buyers knew that, and unless they received long-term guarantees from Washington they wouldn’t bite.

    • 0 avatar

      Sorry, utter nonsense. Or putting it into Wikipedia words: Citation needed.
      The money for financing the Opel/Magna deal was to be provided by the German government, not by the American. The American government strictly forbade any money to go abroad. As predicted here, when Whitacre said “If Mrs. Merkel declines help, we will pay for it ourselves. Maybe this will make your chancellor happy,” any chances of German help had evaporated. Frau Merkel was fuming.
      Berlin strung out Opel for another half year as penance (every day drains cash) and then denied help. Sneaky European governments offered money, contingent on German aid, which they knew would not come.  So finally, in June, GM threw in the towel on European government money.
      The American government never offered any inducements. But being the majority shareholder, the American government and the American taxpayer now pays for past and future blunders.
      So before you accuse a TTAC writer of selling snake oil, get your facts together.
       
       

    • 0 avatar
      tparkit

      “The American government strictly forbade any money to go abroad.”

      Think about your own words, because there you have it in a nutshell. That’s why a deal was never made. The Europeans would join the party, in a small way, only if Washington shouldered the long-term burden of keeping Opel alive with operating cash and capital. Washington didn’t, and the Europeans artfully delayed before stepping back altogether.

      The reason the Europeans were out front in the press is because this approach provided necessary political cover for Washington. For Washington to participate, the charade had to look like Washington was joining a European-led effort as a mere supporting player. In the end, though, the political risk was to great, the charade too thin in an election year.

  • avatar
    bomberpete

    GM’s most promising small car platforms come from Europe and bigger car ones are from Australia.  With Chinese design an unproven commodity here, what would GM’s North American viability be going forward — outside of trucks — without Europe?


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