Shocker! GM Cancels Opel Sale, But Why?

On Monday of this week, German Prime Minister Angela Merkel met with President Obama in Washington and then addressed the US Congress, where she was warmly greeted, and made an impassioned address concerning the environment and global warming.

She was on top of the world when, just minutes later, she heard the news that General Motors had decided call off the sale of their European division headquartered in Germany, Opel.

And GM being GM, the company announced Wednesday that it will cut 10,000 jobs at Opel and their British division, Vauxhall, un-employing about 20% of the company's 50,000 workers.

Opel's GT was one of the first Opel vehicles sold in America; some compared it to a "mini-Corvette"

And boy, is Merkel pissed. She might not be making more warm and fuzzy speeches to Congress anytime soon. And European Union members share her feelings. Unions are all-powerful in Europe, and GM dropping the sale and the resultant job losses could wind up looking like a huge defeat for Germany and the entire EU at the hands of a recently bankrupt worldwide corporation.

In Europe's semi-socialist societies, people expect to train for good jobs, get good jobs and then keep those good jobs with benefits which would give a heart attack to the average Harvard-trained bean counter in this country. And they expect their governments to protect their rights ... and their jobs. For years, union members have been on the boards of directors of most large companies.

The sale would have needed approval from the Germans and the EU; apparently GM has had enough of dealing with national (and continental) governments and they cited the costs involved in the sale and the necessary waits for permissions from Euro entities as some of the reasons for their decision.

Opel started making cars in 1899; here's one of their first models

John Smith (wonder what name he uses when he checks into a hotel?), GM's group vice president for corporate planning and alliances, said other considerations in the cancellation were GM's and Opel's improved cash conditions.

The new Opel GT served as the basis for the Pontiac Solstice and Saturn Sky

The plan for GM was to sell Opel to a consortium led by gigantic Canadian auto parts-maker Magna International which would be bankrolled by a Russian bank, Sberbank; the bank and Magna would each get 27.5% of the company, GM would keep 35% and the employees would own 10%. Ironically, Magna may get more work orders from GM because they're keeping Opel.

The sales cancellation move came as a shock to almost everyone in the worldwide auto business. Insider consensus was that GM would sell Opel as they've planned to for the past seven months, a move which would have infused many, many needed millions into GM's shaky coffers.

Canceling the sale is actually going to cost GM. They have to pay back a $2.3 billion bridge loan from the German government (meant to keep Opel open, up and running during the sales process) which they've already been paying back, but they still owe the Germans some $1.4 billion. GM plans to incur about $4.4 billion in restructuring expenses because of their decision to cancel Opel's sale.

 

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Comments

[anyoneoutthere]

Well, perhaps GM will see it fit to scrap its entire North American line and import the Opel line instead, preferably unchanged. It will be a big improvement. They might even compete with the Japanese. But I must be dreaming...

[EdRigsbee]

Perhaps there is a very simple explanation? Apparently the remaining GM decision makers have had enough government control and are hamstrung in the USA. Let's face it, the best thing for GM in the USA would have been to bankrupt and get out from under the legacy costs of production. But, the executive branch of our government was more worried about a re-election in four years and pandered to those that put them into power.

Strange situations create strange bedfellows. Oh well...

Ed Rigsbee
Author, "Developing Strategic Alliances"
www.edrigsbee.com

[Steve Parker - Huffpost Blogger]

Good comments and you're certainly not the only one making them. I'm sure GM was happy to stay in business, and they sure didn't turn down the money from DC. I think both sides, GM and DC were also very concerned with keeping GM workers in their jobs.

[iridium53]

Uh, I don't know, maybe they wanted to get more bailout money and spend it on plants in China?
So they can outsource more American jobs?

[JScott]

Yup kinda wondered why GM wanted to get rid of Opel anyway, some of their better products came from there, unfortunately the US didn't get a lot of them.

[Nitehawk]

I wonder how much of this is related to the deal on Saturn which fell through, GM still has a lot of dealers for that brand. Could GM be thinking of importing Opals and selling them as Saturns?

[Steve Parker - Huffpost Blogger]

Good idea ... I hope GM does just that!
Hell, if Chrysler and Dodge dealers can sell Fiats ... why not?

[brklynivn]

Is GM paying for all of this with taxpayer dollars?

[Steve Parker - Huffpost Blogger]

Good question. I do know that GM and Chrysler have to get permission from the Feds when they want to spend that money so there it least the appearance of all of us having some control over how they use our dollars.
I would guess that if they got Fed permission to spend bail out money on this Opel situation, then they'd spend it.
It's just one more unthinkable situation which has become reality because of the Bush Depression ..

[TomWilkinsonatGM]

There are a number of options for funding an Opel restructuring, and these will be worked out as part of the revised restucturing plan and in discussions with various stakeholders. Under the exit financing provided as part of GM's emergence from bankruptcy, some U.S. money could be provided if needed. Keep in mind the number one priorty of the U..S. Treasury is for GM to become a successful, profitable business. That will create the greatest value for the taxpayers and other shareholders, and generate the best return when the government and others begin selling their stock to investors.

[TomWilkinsonatGM]

At the end of the day, GM has to do what is best for GM. The only way for GM to be successful and repay the trust of the taxpayers is to be a healthy, profitable business. The Opel decision was a tough call, but as the business situations at both GM and Opel started to improve, GM keeping Opel and managing the restructuring proved the best choice. Keep in mind that all restructuring plans proposed for Opel (even Magna's) would result in cost costs and job losses. That is the reality of the global car business operating in a sharp downturn.

[Steve Parker - Huffpost Blogger]

Hi Tom! Thanks for "your side of the story" ... people should know you are GM exec and we're thrilled you check-in with us!
I think GM should have waited a bit before announcing the Opel job cuts. Canceling the sale combined with the future job loss announcement was a lot to take-in over a period of just three days.
On another topic, I still say GM should get rid of Buick (diluting the Cadillac brand) and GMC ... dealers could offer Chevy tucks with more levels of power and other options...creating ersatz GMC trucks, and Chevy would become the best-selling truck in the US, taking the title which Ford has held for over 50 years.
I like the fact that Cadillac seems to be regaining some of their old gumption and saying that they're the best ... better than the inferiority complex GM has suffered with the past 30 years!
Finally, I spent a week in a LaCrosse. Wonderful car, and it was a pilot car. But Buick's tag of "The new class of world class" is confusing ... people will say, I thought Cadillac was the classy GM division.
See how easy it is for me to solve all of GM's problems?

[TomWilkinsonatGM]

Hi, Steve! The job cuts were part of the Magna-Sperbank restructuring plan, and all GM confirmed was that its forthcoming restructuring plan would likely have similar cuts. (The overcapacity at Opel and in Western Europe in general is a problem with no easy solution.) We are starting to work on a revised restructuring plan and will have more details shortly.
Glad you liked the LaCrosse. Stay tuned for more from Buick (and Cadillac, too!)