Betrayed By Its Own Auditors, Opel Turns Into European Tar Baby

Bertel Schmitt
by Bertel Schmitt

Opel’s Nick Reilly is casting worried glances towards Berlin and Brussels. What he hears from there makes him double his Maalox dosage. Or pop some local Rennies, if the heartburn meds are in short supply at the Apotheke in Rüsselsheim. Which they undoubtedly are. Nobody wants to help Reilly. Berlin doesn’t want to. Brussels doesn’t want to. Even Opel’s own auditors are no help. This tale would be better told by Kafka. He’s dead. I’ll try.

Brussels used to be famous for its elaborate lace. Now, mass production of red tape has replaced the intricate textile. As you may recall, Nick Reilly circulated its alleged turn-around plan for Opel amongst European governments, with the intent to shake loose €2.7b in charitable donations. Reilly needs the money for Opel to survive. GM’s cupboard is bare.

On receipt of the plan, Germany’s Economics Minister Rainer Brüderle sent the document to Brussels, along with a request to “to examine critically whether the business plan is viable and whether competitive distortions in Europe can be excluded.” Other EU countries, such as Belgium, also asked the EU for an opinion. After all, it had been agreed that none of the EU states would act alone, and only after the EU Commission had vetted the plan.

Just in case Brussels wouldn’t find the time to study the plan, Brüderle supplied his executive summary: He has serious doubts about Opel’s restructuring plan. “The viability is questionable,” said a memo by Brüderle’s men.

A week after the files had been submitted to EU Central, the commissars replied. They said, sorry, the EU had already rendered an opinion on Opel, the new plans are not worthy of another assessment, no opinion will be forthcoming. This according to a report by Germany’s Rheinische Post.

Reilly’s plan is now stuck in a black hole somewhere between Brussels and Berlin. According to the German edition of the Financial Times, Berlin insists on a blessing from Brussels, but Brussels doesn’t want to touch the devilish documents. Berlin doesn’t want to get burned either and kicks the files right back to Brussels: “We insist that we find a solution which is based on a European examination” said Brüderle’s State Secretary Jochen Homann. Having made his point, Homann showered Brussels with probably not highly sincere praise: “We admire the wisdom of the commission, which was able to render an opinion after reading a short summary. We aren’t there yet.“

In Brussels, the commissars in charge of the matter have changed. Günter Verheugen and Neelie Kroes have finished their stint in Brussels. Ten days ago, they have been replaced by Antonio Tajani and Joaquín Almunia. Maybe, the freshly minted commissars from Italy and Spain are still learning the ropes. Or they are cognizant of the fact that the EU has other problems. Greece needs to be bailed out to the tune of €20b to €25b. Portugal, Italy, Ireland, and Spain could be next. Nobody has the bandwidth for Opel’s quandary.

For those who don’t want to help Opel, the situation couldn’t be more wunderbar: By mutual agreement, help for Opel needs Brussel’s placet, Brussel says there will be neither a yes nor a no, so any help for Opel is verboten. Sorry!

Devoid of an opinion from Brussels (on which he nonetheless insists, appearances must be kept) Brüderle ordered his officials to enlist the services of PricewaterhouseCoopers, says the FT. PricewaterhouseCoopers should audit the plan. It’s pretty much a symbolic act to buy time and rear-end coverage.

The first thing PWC will note is that Opel’s own auditors are not so sure whether the plan has merit. It could be the usual weasel-worded disclaimers, caveats and qualifications auditors like to insert into any opinion. However, the German magazine Focus says that Warth & Klein, the auditors enlisted by Opel to shore up their plan, found “numerous weak points” and “additional risks for the tax payer” in Opel’s restructuring concept. Opel’s own auditors aren’t so sure whether Opel qualifies for government money. They say the problems at Opel „were not only temporarily caused by the current economic crisis, but also by a technological deficit” in comparison to the competition. By Warth & Klein’s own assessment, Opel “has in the past demonstrated a limited disposition towards investments and innovations, caused by the corporate crisis at GM.“

Translation: Opel is not a victim of carmageddon. Opel’s lifeblood has been sucked out by Detroit vampires. With CPAs like these, who needs money from Berlin.

This is a neck-breaker. Money from the “Deutschland Fonds” is only available to innocent companies who became an unwitting victim of the market malaise. If they brought it upon themselves – sorry, please go and die, and don’t make a mess of it.

What’s worse, Opel’s own auditors warn that even with a governmental cash injection, Opel may run out of money by end of 2013, and that the money paid by Germany could seep through the borders and vanish abroad.

This confirms the German government’s worst nightmares, and it is all Brüderle wanted to hear. If Opel’s own CPAs, and by submitting the document, Opel itself, doubt the future, what are the guesses that PWC will come to the conclusion that all is rosy in Rüsselsheim?

After Price Waterhouse has taken the time and money necessary to come to their appraisal, it will read like this: “Based on the information provided by management, the Due Diligence Team at PricewaterhouseCoopers AG has come to the conclusion that Opel is done and should be disposed of in an environmentally responsible fashion.” Or more diplomatic words to that effect.

Opel has turned into the European tar baby, and nobody wants to get stuck with them in the brier patch between Brussels and Berlin.

Last Friday, Industry Commissar Antonio Tajani called a meeting of all 27 of Europe’s economy ministers in Brussels to discuss the future of the European auto industry. There was a lot of talk about over-capacities and sinking demand. “We need a coordinated approach on a European level to arrive at a sustainable recovery,” said Tajani after the meeting. Opel wasn’t mentioned. Tajani is a confidante of Italy’s Berlusconi. Italy’s Fiat would miss Opel just as much as Germany’s Volkswagen would miss Opel.

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  • Bertel Schmitt Bertel Schmitt on Feb 21, 2010

    This intellectual property prayer wheel is getting creaky. I am old enough to remember the same old arrogant song being sung about Japan, and then Korea: Oh, they copy everything, their quality sucks, they'll never make it. With that train of thought you are playing right into the hands of your competitor. Imitation is the mother of invention. At some point, they have it figured out. Usually, while nobody is looking. The big difference of China is that it has more than ten times the population of Japan, nearly 30 times the population of Korea. As an auto maker, you have two choices as far as China goes: Don't deal with the world's largest auto market, and you are dead now. Deal with the world's largest auto market, and you may be dead in 20 years. If you don't want the Chinese to get their hands on the brilliant Opel technology (which even their auditors think is not so hot) then close Opel now. Volkswagen will gladly take their market share in Europe and in China. Also the "can't export cash from China" is a myth that won't die. Believe it at your own peril. I do business in China. I can export cash anywhere I want at the click of a mouse. Two years ago GM announced they would pull cash out of China. You may recognize the author.

  • Porschespeed Porschespeed on Feb 21, 2010

    I'm old enough to remember those same arguments about Japan and Korea as well. They *did* copy everything, their quality *did* suck, but only the fools in American boardrooms had the hubris to think for a second that they wouldn't make it. The more educated and traveled knew damn good and well that they would, in fact, make it. And giving them the IP to do it is what played right into their hands. Underestimating your enemy is the best way to lose. The world, and the US in particular, has created the problem known as China. Unregulated greed has allowed a massive outflow of our capital to a quasi-communist-totalitarian regime with cheap labor. This race to the bottom has helped to cripple our economy and has basically eliminated the US manufacturing base. "Dealing" with the Chinese auto market? Can you sell your company as you wish? Can you own your car company instead of being a minority partner? Do you really have faith in the Chinese legal system as a foreigner? Sure you can move few million RMB around. My understanding from friends is that significant sums are made far more difficult. Bertel, I'm not suggesting for a moment that the Chinese aren't capable. I know they're capable, that's the problem. Well over a billion most nearly slave-laborers is not a recipe for fair trade. It's a recipe for gross imbalance that will inevitably drag down the rest of the world. The planet will not survive the attempt of another billion people to live like people in the EU, or even worse, like in the US. Hopefully the Chicoms will mismanage their pending commercial real estate and banking crisis. Might slow them down a bit.

    • Bertel Schmitt Bertel Schmitt on Feb 21, 2010
      Can you sell your company as you wish? Yes. Can you own your car company instead of being a minority partner? No. Car companies are classified as strategic industries in China, and you must engage in joint venture. 50:50 at least (not minority.) This requirement is a common occurrence in many countries. As a non-citizen, I am barred from owning a defense contractor in the US. When I lived in the US, I wanted to buy a radio station in Maui together with a friend and live the dakine life. Ai yah, no can, brah: As a non-citizen, I was reduced to a minority interest. Last I looked, US airlines were restricted. So was foreign ownership of certain parts of US infrastructure. A Chinese parts manufacturer I can own without limitation. Except for industries that are classified as strategic, joint ventures are quickly going out of style. Do you really have faith in the Chinese legal system as a foreigner? No, all my contracts specify binding arbitration in Hong Kong. Sure you can move few million RMB around. My understanding from friends is that significant sums are made far more difficult. They are mistaken. A Wholly Owned Foreign Enterprise can move all its profits outside of the country as long as the taxes on them have been paid. WOFEs enjoy such a preferential treatment that many Chinese incorporate their company as a WOFE: They set up a Hong Kong company ( = foreign, believe it or not) then the HK Co. opens a Chinese Co as a WOFE. Tadah, profits can be expatriated. And please, get off the "well over a billion most nearly slave-laborers." There are minimum wage laws. There are workplace protection laws that mirror those of Germany.(I think they copied those too ....) It's much easier to fire someone in the U.S. than in China. Everybody must have a work contract. Tell me where I can buy those slaves and I will buy them. In the meantime, I have to pay them their wages plus approximately 20 - 30% social costs. How do you think China turned into the world's largest car market if their people are mostly slaves? Arguing with me about conditions in China is a losing proposition. I have lived, worked, and owned businesses there for 6 years.

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  • Chris P Bacon Ford and GM have decided that if you can't beat 'em, join 'em. Odds are Chrysler/Cerberus/FCA/Stellantis is next to join in. If any of the companies like Electrify America had been even close to Tesla in reliability, we wouldn't be here.
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