By on December 8, 2011

For no immediately obvious reason, Germany’s Frankfurter Allgemeine Zeitung has a long article today, which says that GM is running out of patience fast with its money-hemorrhaging Opel unit. The paper predicts new negotiations (read firings and plant closures) with the unions – “or worse.” (Read good riddance Opel.) The sound of rattling sabers is all over the article.

Departing union boss, works council chief and deputy chairman of the Opel supervisory board Klaus Franz insists that there is a contract between GM and the IG Metall union. In return for foregoing raises of €264 million annually, and approving the drawdown of thousands of jobs, the union had received assurances that there will be no more firings or plant closures through 2014.

However, the paper found (probably not without a guiding hand) an escape clause in the contract:

“In the event of material changes to the general economic conditions (significant rise of inflation rate, breakdown of demand in the automotive market) or to the assumptions which build the basis of this agreement, both parties will, in friendly consultations, find solutions for additional measures.”

The paper declares that “there is no doubt that all these events have already been triggered, and that there is “legal basis for GM to put all agreements under review.”

Letting more people go will not translate into immediate savings. As mentioned here repeatedly, a reduction in force costs a lot of money in Germany. FAZ says that “the reduction of 8,000 of the 48,000 jobs at Opel did cost GM nearly a billion Euro.”

That, dear reader, is $168,000 per chopped head.

You can let people go without payment if the company goes bankrupt. This option has been specifically left open. In an SEC filing, GM had warned that a failed restructuring of Opel could prompt a local bankruptcy.

Selling Opel is another option, but to whom? And what would be sold? More than 5,000 engineers develop technology in Rüsselsheim, but the licenses are banked somewhere in Delaware. Basically, the buyer would get a huge Saab, with GM holding the technology reins.

All in all, the article in the usually well-informed FAZ looks like a warning shot, aimed at the unions to cow them into submission.

On the day Stephen Girsky was named Chairman of Opel’s supervisory board, Girsky’s former employer Morgan Stanley issued a scathing research note. The bank figures that Opel is worth “minus $7.6 billion,” and that getting rid of it one way or the other would cost between $5 and 6 billion, a solution the bank recommends.

The analysts figure that selling Chevrolets in Europe would yield a profitable share of 3 percent of the European market, much better than an 8 percent share that only makes losses.

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29 Comments on “Opel: Keep, Sell, or Kill?...”

  • avatar

    Seems like it would make sense to just shut it down and sell Chevy’s. Keep the engineers that are responsible for the huge improvement in GM’s offerings.

  • avatar

    Bundle Opel with SAAB and sell it to the Russian bankers. Then move production to Greece, should be a good situation.

    • 0 avatar

      I hear there’s an outfit in Greenwich CT called North Street Capital that real hot to own a car company.

      Funny thing, their web page is blank. Oh well, must be my PC.

      I’m assuming that a lot of the parts that go into Saabs are Opel parts. What would happen if Saab for some unknown reason actually survives? If Opel is gone or no longer part of GM, who supplies parts? I would assume GM would be responsible. What if Opel folds completely? Saab gets parts directly from the suppliers?

      But that’s crazy talk. Saab isn’t going to survive.

  • avatar

    Veddy veddy interesting. I predicted Girsky was going to get tough quickly, but for some reason I thought “quickly” was more likely to be January or February.

    Also, you meant “$5 or 6 billion” to dump Opel, not million, a price that’s looking better by the day…

  • avatar

    I don’t understand why VW is thriving while Opel is always a money pit.

    • 0 avatar

      VW doesn’t have GM management.

      • 0 avatar

        VW is multitudes larger than Opel in Europe. Opel has basically no global presence outside of Europe, whereas VW is huge in China and South America.

        The only value in Opel is the engineering, so if GM can save that portion of the firm and shut everything else down, then it’s probably for the best. Opel does make some competent cars themselves however they can be sold under other GM brands, and the world won’t shed too many tears over Opel’s demise.

        GM would have to seriously improve the Chevrolet offerings in Europe, however, as they are still GM Daewoo offerings, and are much, much cheaper and lower end than Opel. Opel competes with Ford, whereas Chevrolet in Europe used to compete with Kia and Hyundai but not really anymore as Kia and Hyundai are better. They’re now at the bottom of the barrel with Dacia (maybe). Maybe worse…maybe Proton/Perodua or the other obscure Asian makes.

  • avatar

    A German once told me Germans no way would buy cars labeled as Chevys or other GM brands, despite Opels largely being Chevys or other GM brands. He was a little nationalistic (not to the point of arm bands) but I saw his point.

  • avatar

    GM didn’t even want to see Saab sold, how likely is it to sell Opel, given that it has all the latest platforms, platforms which is used by many of its U.S. products as well? Whoever wants and can afford to buy Opel, GM won’t want to sell to them!

  • avatar

    If they threat to shut it down, Angela Merkel will open the wallet again and everyone are happy another year.
    GM will not sell and Germany will not allow to shut down.

  • avatar

    Probably best to close the plants and the brand but keep the engineers. Three reasons: 1)Opel has little pricing power coupled with high manufacturing costs 2)no growth on the horizon for Western Europe, its primary market 3)little benefit for GM to promote yet another brand in China

  • avatar

    I wish GM were more patient with Opel and its EU Operations. EU losses have already been cut in half. A loss of 580 Million so far in 2011 vs 1196 Million in 2010. Of which there was a one time impairment charge of 395 Million in Q1. Excluding that, the losses are only 200 Million for 9 Months. Opel did have a profitable quarter in Q2 when it made 100 Million. Sales are up 83,000 Units to 1.32 Million. If they could do this in a year with so much turmoil in Europe, they are well set to rake in profits when things turn around.

    IMO Dan and Company are frustrated and impatient they couldn’t break even in Europe this year. That or they are using the market turmoil to their advantage and cutting costs further.

    Opel provides a lot of value to GM not to mention 1.7 Million sales a year in Europe. Opel is leveraged very well outside Europe too. The Regal based off the Insignia sells around 120,000 Units a year in China and US. The Buick Excelle sells around 25,000 Units a Month in China and could do around 4000 Units a month in the US as the Verano, both based off the Astra. China is the most important market now and opels products badged as Buick are growing at dramatic levels.

    The Chevy Captiva based off the Opel Antara is the top selling car for GM in South East Asia, one place where GM is up 60% so far this year and is on track to increase market share to 10% by 2013 from 1.3% in 2010. Opel specializing in small cars can do very well in these regions, rebadged as Chevy.

    Toyota is losing 5 Billion Dollars a year on their Domestic operations, the strong yen in addition has shrunk profits on exports. You don’t see them selling off their businesses in Japan and moving all operating elsewhere.

    • 0 avatar

      The Buick Excelle, a rebadged Astra sold 304,000 Units in 2010, and is up 15% this year. That’s pretty much how many Camrys are sold in the US. Include the 50,000 Veranos that will be sold in the US every year and you will understand how important Opel is to GM.

    • 0 avatar

      You are correct, alluster!

      Opel is recovering, if you take into account that the layoff of the Opel workers did cost roughly a billion, it is clear that it Opel is already making an operating profit.

      Also you are correct in another matter: US managements are known for the shortsightedness. A Japanese manager would never sell off a company that loses money in the short term, when in long term the company could prove profitable.

      That is why Toyota could climb to the top and why GM had nothing to show execept cutting down costs and even more costs until there was no substance left.

    • 0 avatar

      The central question here is if and how the profits on the rebadged Insignias, Astras and Antaras are taken into account in Opel’s numbers. Without Opel, none of the profits on those rebadged vehicles could have existed. In that light, I cannot see GM kill off Opel anytime soon.

  • avatar

    Opel is very unlucky. They have perhaps the most stylish model lineup in Europe at the moment and the cars are actually well screwed together. The problem is of course the economic climate in Europe despite which they have increased the market share a bit beating the rivals from France and Italy but unfortunately that is somehow not enough with GM’s cost structure.

    Chevys will sell in Europe but nowhere near Opel numbers. Chevrolet in Europe is just another name for Daewoo and Opel still has some brand cachet left.

  • avatar

    Bertels Volkswagen past is shining through in his eagerness to put Opel out of business.

  • avatar

    Someone would buy Opel. My bet would be Fiat. The lack of IPR wouldn’t matter to them Fiat could rapidly switch to it’s own platforms. It would leave the rest of GM exposed though as they wouldn’t have the economies of scale in Europe that the IPR then demands.

    If not Fiat then how about Tata or Geeley. Tata knows how to turn failed US run businesses round quickly. Look at JLRs profits for guidance…..

    • 0 avatar

      Fiat won’t buy into high cost manufacturing in Europe when Sergio is in the process of moving out of Italy, establishing Fiat-Chrysler as a western hemisphere automaker. Chrysler/Dodge in North America, Fiat in South America/Asia, and Jeep worldwide is the obvious business plan. The Polish Fiat plants are enough for the European market, and the cheap (and cheapening) dollar probably can make importing American-made Alfas and Lancias into Europe very profitable. The probable demise of the UAW holds far better prospects here than dealing with the Italian and German unions.

  • avatar

    Won’t sell as it would have been sold under old GM during BK.

  • avatar

    Liquidating the German company, and slapping the Opel marque onto Korean-made cars, doesn’t seem to be out of the question. It’s not as if assembling them in Germany provides GM with much benefit.

  • avatar

    Opel is a massive source of engineering for GM right now. All sorts of vehicles from Saabs to current Buicks to the upcoming Chevrolet Malibu all have a substantial amount of Opel in them.

    It’s a similar deal with Saab, why not just keep the engineers and liquidate everything else? That seems to be the smartest thing to do. Selling it off like they did with Saab would likely be much more trouble than it’s worth.

    • 0 avatar

      Liquidating a company is (thank God) not so easy over here in Germany. GM would have to pay a hefty compansation to that. The five billion number might even be too small for that.

      If they try to play smart however and try to let Opel go bankrupt GM will lose even more. You might want to take a look here:

      “And above all the court can appoint a temporary administrator. […] the temporary administrator has the full right to manage and to transfer the debtor’s assets (so-called “strong” tempo-ary administrator). This means that he can take possession of the debtor’ s assets, continue the debtor’ s business and – within certain limits – sell the debtor’ s goods and collect the claims the debtor has against others.”

      • 0 avatar

        “And above all the court can appoint a temporary administrator. […] the temporary administrator has the full right to manage and to transfer the debtor’s assets (so-called “strong” temporary administrator). This means that he can take possession of the debtor’ s assets, continue the debtor’ s business and – within certain limits – sell the debtor’ s goods and collect the claims the debtor has against others.”

        This is a normal part of bankruptcy. In the US, the administrator is called a “trustee”, but it’s essentially the same job.

        I don’t see how the equivalent of a Chapter 7 bankruptcy of Opel could cost substantially more than the value of Opel’s assets. If the company doesn’t have the money to pay all of the claims, then it doesn’t have it. The assets get liquidated, and the proceeds are handed out to those who have a claim.

        If GM is smart, then Opel will have been structured so that it holds no assets of any real importance. If GM wishes to stop production in Germany, then nobody at GM should care if the bankrupt entity owns the manufacturing plant, as it probably has no real value, anyway.

        Assuming that this has been planned for, I don’t see what would prevent GM from starting a completely different R&D entity that hires those few workers that it wants to keep. At the end of the day, Opel is just a badge.

  • avatar

    OPELSUNITED will not take this lying down by God. We plan convoys with all signing the theme song from Les Miserables. Perhaps a Facebook campaign. We all know how efective that is with General Morons

  • avatar

    After GM got rid of the overcapacities in Trollhättan, which unfortunately didn’t lead to the desired result of cleaning out the European car market, a bigger sacrifice will be necessary.
    I can only congratulate GM strategists on the solution they are deliberating: VW will absolutely love it. Hyundai will go crazy. And Chevrolet will not even fill 20% of the market shares a closure of Opel will make available.
    Giving up Opel means to abandon the European market. Considering the demographics of Europe, this may be a wise decision – decades ahead of anyone else.

  • avatar

    Kill it. Opel used to be a budget car “Made in West-Germany”. Now they are pretty expensive but still low quality.

    • 0 avatar

      “Low quality?” Based on what are you stating this? When was the last Opel you drove? And budget only in that they filled the same target as did Chevy over here…mainstream, middle-class.

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