By on February 23, 2010

Every evening and every morning, and times in-between, Nick Reilly wonders why he exchanged his cushy job as Shanghai-based chief of GM’s international operations with the purgatory of heading Opel in Rüsselsheim. This Tuesday morning, he woke up to more news from hell:

An unholy alliance of the center-right German government and the supposedly left-leaning unions told him that his turn-around plan for Opel is rotten, and if GM doesn’t cough up €1.65b, there won’t be a cent in government money.

After the EU in Brussels had refused last week to touch the hot potato Opel, and after Opel’s own auditors had betrayed their client, the German government convened its “Bürgschaftsausschuss” (loan guarantee committee) on Monday. It was quickly resolved that the committee doesn’t like Reilly’s plan at all. The assembly found “a number of open questions and concerns” in the concept, reports Germany’s Börsen-Zeitung [sub]. The two biggest questions, according to Germany’s Handelsblatt:

Has Opel been in difficulties before the financial crisis hit in 2008? If the answer is “ja,” then this implies a “nein” for government money. The law that governs the “Deutschlandfonds” requires that a company had to be healthy before September 2008, when Lehmann Brothers triggered the money malaise mondiale. If the applicant was already sick, then life support must be denied. Them’s the rules.

On the outside chance that Opel is diagnosed free of any pre-existing medical conditions, then there remains the “fundamental question regarding the adequacy of the shareholder contribution,” as the carefully crafted minutes of the loan guarantee committee meeting read.

Translation of the stilted language: Opel’s sole shareholder, GM, has to come up with an adequate share of the bail-out money. Adequate being at least half of the total of the €3.3b necessary to keep the lights on at Opel. Message from Berlin to Detroit: ”Send €1.65b, and we’ll talk.”

Reilly’s argument that Opel is a European company, and GM’s cash belongs to the American taxpayer, does not get much sympathy in Berlin. “No money, no honey” as the saying goes in Reilly’s former residence in Shanghai.

Opel’s unions are in rare agreement with Berlin. “GM hasn’t sold Opel. Therefore, GM needs to invest considerably more into Opel,” said Opel Works Council leader Klaus Franz in Rüsselsheim. He also thinks €1.65b from GM would be about right.

In the meantime, Das Autohaus reports that EU competition-commissar Joaquín Almunia, the man with the dislike for hot potatoes, has sent a letter to all European countries with Opel plants, and admonished them to stick to the strict EU rules. In other words: No unilateral help for Opel, unanimous consent or nothing. With the biggest donor nation being tight-fisted, to the applause of the unions, it increasingly looks like nothing.

Nick Reilly’s flash-backs of the good life in Shanghai will only increase: “I could be the king of the world’s largest car market. Two million GMs this year in China. The government loves you. Unions? What unions? Why did I leave for this hell-hole Rüsselsheim? Why?”

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16 Comments on “The Strife Of Reilly: Berlin Abandons Opel...”

  • avatar

    “Message from Berlin to Detroit: ‘Send €1.65b, and we’ll talk.’”

    Yup, that’s all that was ever going on in any Opel “negotiations”. The only quibble is that the amount is low. Small numbers like €1.65b are for public consumption, and are aimed at helping Washington/Government Motors falsify the amount of cash it funnels to (oops, I mean “invests in”) Opel by methods covert and overt. Truth is, the Europeans want much more from the US taxpayer.

    Don’t be surprised if a new, private “investor” suddenly materializes. This party won’t put in a dime of its own. Instead, it will inject billions borrowed with 100% backing by government guarantees. Translation: the taxpayers will extricate Washington from its political predicament under the guise of a public/private-sector partnership. Naturally Government motors will “stay involved” in Opel’s glowing, high-tech, industry-leading future, because without long-term guarantees of cash inflows from the US taxpayer, the Europeans and the private investor won’t be interested. That said, there are lots of ways to skin this cat. The single most important issue is US government money; exactly how that money gets to Europe is less important.

  • avatar

    …if GM doesn’t cough up €1.65b, there won’t be a cent in government money.

    The irony of this phrase… So true. Except the “government money” will be the 2 bil GM contributes.

  • avatar

    I drive an Opel, I like their cars. But General Motors owns Opel and therefore Opels troubles are General Motors troubles, not Germanys.

  • avatar
    Detroit Todd

    Why can’t GM just scuttle Opel’s production facilities and keep the engineering and R&D talent? From what I know about this situation(which is admittedly very little)that is the only real value in Opel.

    It’s not like GM lacks production capacity outside Europe. In addition, currency exchange and labor costs do not favor Europoean production.

    • 0 avatar

      Because Opel is deep in debt, and any creditor who loaned Opel money is not gonna watch the most valuable parts of his collateral (Opel R&D facilities) get carved out while the remaining parts are going bankrupt. It’s illegal.
      You’re right, GM doesn’t need most of the European production sites. What it does need is small car platforms developed in Europe. GM doesn’t have the money to save Opel, so they need state aid. And teh states care about the manufacturing jobs…

    • 0 avatar

      Not possible. Two reasons:

      1.) As long as the tech center is an asset of Opel Germany (and I think it is)you cannot close down the factory and keep the engineers. Well, you could, but then you would have to make large severance payments to everybody you fire. If Opel goes bankrupt, no severance payments, but the tech center goes with Opel. If you “sell” the tech center to the mother ship, and then take the rest BK, then better keep a toothbrush and fresh underwear at the office, because they will come and get you.

      2.) A car R&D center needs to be close to production. Someone needs to make the cars. There needs to be feedback. Can’t operate in a vacuum.

      Theoretically, you could close everything down and offer the 6000 engineers a job in Shanghai, but I doubt this will be very successful. My fellow countrymen in the Fatherland are usually kindof, shall we say, inflexible when it comes to mobility. Sure, they do a stint for a year or two abroad, with a written guarantee that their job at home will be there when they come back, and that a promotion beckons. But sell the house in Rüsselsheim and move to China for good? Um Himmelswillen!

  • avatar

    don’t worry Fritz is back.

  • avatar

    I wonder by when sales of Opel cars will be affected by that “soon to be dead brand”discussions. Opel kind of has OK cars, but nothing special. With the fear of not existing anymore, I would chose a different make for various reasons (resale, service, warranty etc.)

    I could see that if Porsche was going out of business, there would be a run to buy the last cars. But Opel isn’t so famous.

    C4C boosted Opel sales a bit, bit that is over now, so their cash drain will accelerate. any numbers on that?

  • avatar
    fred schumacher

    When Chrysler bought AMC, they got two valuable assets, the Jeep Cherokee and the people who designed it. Iacocca moved those designers from Wisconsin to Michigan, stuck them far away from headquarters brass and they designed the innovative cars that made Chrysler profitable in the 90s, which, unfortunately for Chrysler, brought on the Daimler deal. Daimler promptly reversed all the practices that made Chrysler profitable, and the rest is history.

    The value of AMC was primarily in the designers, not the factory. Cars can be built anywhere. Good designers are rare. There’s a lesson here for GM. Spin off the design department and keep it and the designers in Europe, far away from GM brass in Michigan. As for the factory jobs, it surely seems like the Germans really don’t want them.

  • avatar
    fred schumacher

    There’s another thought that just hit me about Opel. Considering the exchange rate between the dollar and the euro and the reality of tight work rules in Germany and looser ones in America, it probably is now more cost effective for GM to build Opels in North America and export them to Europe.

    • 0 avatar

      Only problem with that is the renowned american build quality which would make customers (like me) walk away.

      I sometimes go on excursions to the Chevrolet-Cadillac-Jeep-Hummer-Dodge (yes GM and Chrysler products under the same roof, called US car dealership here) and laugh at the quality.

  • avatar
    Mr Carpenter

    Fred, you’re probably right but in fact after adding in tariffs and shipping costs, it might be cheaper to continue building the cars in Europe. (Just “Eastern Europe” where costs are lower – not Germany, Belgium, etc.)

    Good luck with that, Opel.

    OTOH, Opels are manufactured in Brazil as Chevrolets, aren’t they? Brazil is a low cost producer. There are excess Mexican GM plants available, too.

    GM could set up a new Global design and engineering center for small cars in Brazil and bring in the best of the Opel designers, who might really enjoy living in the warmth and sunshine for the rest of their careers.

    Then close Opel down via bankruptcy and expand the Chevrolet dealership network in Europe to take up the slack, importing Brazilian Chevrolets as Opels alongside lower cost South Korean and Mexicn built GMDaewoos sold as Chevrolets in Europe….

    Even if GM’s European sales dropped to 4% of the market from 6-7%, and they hived off all of the high cost money losing European manufacturing operations in this way, it might be a means for GM to start paying back the US taxpayers with profits – some day.

    OK I’ll stop dreaming now.

    • 0 avatar

      Now THERE’s an idea. I know some Opel engineers who would drop everything work in a tech center in Rio or Bahia. I also know their wives, and they would oppose it. One of my buddies found a STUNNER in Rio. He took her to Korea when he worked on a Daewoo gig. He lost her to a rich guy in Korea. He’d gladly go again.

  • avatar
    Robert Schwartz

    €1 = ~$1.35, therefore, €1.65B = ~ $2.2B.

    Billion dollars should be written G$, where G stands for giga or 10e9 and billion euros should be G€.

  • avatar

    Why do the small-car platforms HAVE to be developed in Europe, do these developments make their way to the US ? Is all of this solely about the Cruze ?

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