Reilly Predicts $2 Billion Loss For Opel

Did you buy the GM share? If the answer is in the affirmative, then you should stop reading immediately. There are great new stories my Murilee Martin, just as a for instance.

Are we entre nous? Ok, here are the bad news: GM’s black hole in Germany, called Opel, turns out to be more humungous and more financial-matter sucking than ever imagined.

A few days after the GM share was placed (“7 times oversubscribed!”) Opel’s chief Nick Reilly told the ugly truth to Germany’s Wirtschaftswoche: Opel will rack up a loss of $2b this year. In the first three quarters (leading up to the IPO), Opel was $1.2b in the reds. In the last quarter, $800m of red ink will flow. And the worst is yet to come.

The restructuring is “dragging on” says Reilly. Opel wants to get rid of 8,000 jobs, 4,000 of those in Germany. This is expensive. 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. They want more. Just getting rid of all these workers all over Europe can cost a few billions. Reilly knows that.

“Next year, we might have a problem if there is no change in the acceptance of our offers,” said Reilly. It doesn’t look like it. Reilly also admits that he has problems selling Opels in Germany. “That’s a special case, caused by the long debates about government aid.”

“Profits would be the best advertising,” says Reilly. That campaign is far away. Next year, Reilly wants to break even “before restructuring costs.” The costs will be in the books. In big fat red numbers.

Before someone says “rounding error” again when talking about Opel numbers, bone up on your math skills: $2b in losses for 2010 are the same as the $2b in Q3 total worldwide profits GM had touted before the IPO. Rarely a rounding error. Also, those happy days won’t be here again soon. When GM’s stellar profits were announced two weeks ago, GM CFO Chris Liddel warned that Q4 earnings would take a hit.

That was drowned out by the pre-IPO drumbeat. As reasons for a less than stellar fourth quarter, Liddel cited “a different production mix, the cost of launching new vehicles such as the Chevrolet Cruze, and the electric Volt, and higher engineering expenses for future products.”

Another possible reason for a disappointing Q4 makes the rounds in the business: In October, GM dumped a lot of high margin cars on dealer lots, and booked them as sales. Rumor has it that the unexpected “demand for high-margin pick-up trucks and crossover vehicles“ wasn’t entirely customer driven. But it surely goosed the numbers.