Cost Killer Girsky Could Euthanize Opel

Reuters reporter Ben Klayman, part of their stellar Detroit team, assisted by Christiaan Hetzner in Frankfurt, did a great piece about the grim options that await Steve Girsky and his merry band of hatchet men when they go over to Europe to whip Opel in shape. It could actually be the end of Opel instead of a glorious future, the report says.

“Options for restructuring Opel range from bad to worse and could include a form of bankruptcy, analysts and bankers say. Costs will have to be slashed further, steps that could include politically charged job cuts and plant closures in Europe. Girsky, who was named chairman of Opel’s supervisory board on Monday, could look for new partners for Opel to share costs, and even return to the idea of selling the brand once it has been repaired, analysts said.”

Adam Jonas, analyst at Morgan Stanley, Girsky’s former employer, says it best:

“You can’t say the words ‘all options are on the table, we rule out nothing’ unless there’s something fundamentally changing.”

Girsky had voted to keep Opel instead of selling it off to Magna. GM CEO Da Akerson had been one of the two board members who had voted to get rid of Opel in 2009.

Akerson called Europe’s economy a “morass” and said Opel needed to lower its break-even point. Easier said than done. German carmakers generally do well, but only on the back of strong exports powered by a soft Euro. In that department, the morass actually plays into their hands. Opel is for all intents and purposes locked out of Asia and can’t leverage that situation.

All of Girsky’s options are depression-inducing. He can reopen Opel’s labor contracts with the IG Metall union that represents factory workers, good luck on that. He can try closing a plant to further lower costs. Good luck on that, the contracts forbid that. Says Reuters:

“Officials at IG Metall, which represents Opel’s plant workers, insist that no job cuts or plant closures are possible until the current labor deal expires at the end of 2014.”

Another option is a “contained bankruptcy.” In an SEC filing, GM had warned that a failed restructuring of Opel could prompt a local bankruptcy. That may scare the unions, or it may not. They still seem to be flirting with the idea of another owner. Any restructuring without bankruptcy will be very expensive, GM is just finding this out.

Selling even a whitewashed Opel will be tough. “It’s very difficult to sell assets in Europe currently, but Opel is even more difficult. You can’t sell a restructuring case,” Reuters quotes an auto banker.

Magna isn’t interested anymore. Fiat isn’t interested. The German carmakers would rather see Opel die.

Of course, the China card comes up again. The unions would rather see Opel be owned by SAIC than by GM. Of course, there is that nasty intellectual property, but SAIC already makes a lot of its cars with Opel technology. They would not see much information they haven’t seen already.

There won’t be much help from the German government. They still haven’t gotten over GM reneging on the 2009 deal. The German government know that thee is too much capacity, and it would rather burden GM with unpopular decisions than one of its own.

Any which way, it will be tough. Said another banker to Reuters:

“What you’re seeing here is a prelude to a massive restructuring, and I don’t think it will be limited to GM. Europe has soft-shoed this for a long time. It’s awfully close to a total meltdown.”

A familiar face will be missing in the drama that will surely evolve: Outspoken union-boss and supervisory board vice chairman Klaus Franz. According to A utomobilwoche [sub], Franz will retire by year’s end. He had sought cover after generous payments to Opel works council members were uncovered. It’s a tough world out there.