What Would GM Be Without Opel? Rich

Bertel Schmitt
by Bertel Schmitt

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.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Tparkit Tparkit on Nov 11, 2010

    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.

    • See 3 previous
    • Tparkit Tparkit on Nov 12, 2010

      "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.

  • BklynPete BklynPete on Nov 11, 2010

    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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