Germany should call GM’s bluff

August 25, 2009

Recently bankrupted companies seeking billions in taxpayer handouts do not generally have the strongest hand at the negotiating table. Yet General Motors seems determined to drive a hard bargain over the bailout of Opel, its European car arm.

After months of tortured negotiations with the German authorities, GM is now threatening to reverse away from the deal. However, it appears to have few alternatives.

Opel reckons it needs 3.3 billion euros in loan guarantees and other support to see it through to the end of 2011. Germany is ready to stump up the cash, but would like to see Opel sold to Magna,  the Canadian car parts maker, and its Russian backers.

GM is worried that Magna’s bid is too complex and would hand its precious intellectual property to the Russians. It favours a rival bid by RHJ International, the Belgian investment group, which requires less state support but would cost more jobs. With an election looming, however, the RHJ deal looks a non-starter in Berlin.

Now GM is suggesting it might keep Opel and raise the cash elsewhere. Quite where it hopes to find that kind of money is unclear. GM is barred from using U.S. government funds to support its international operations.

It has a presence in Britain through its Vauxhall division, but the British government is less prone to being blackmailed with the prospect of plant closures. Just ask Tata, the Indian group which spent months seeking government support to prop up Jaguar Land Rover before giving up.

GM could raise some cash by flogging or mortgaging its Chinese operations, the largest outside the United States. Even though credit markets have eased since the spring, however, the political complexities of such a sale would surely rival anything thrown up by the Magna proposal.

John Smith, GM’s chief negotiator, was due to meet Germany’s Opel task force in Berlin on Tuesday. Smith, who has been providing regular updates on the negotiations on his blog, has yet to offer his take on GM’s latest stance.

Both sides have every incentive to avoid a bankruptcy of Opel, which employs 55,000 people across Europe. But it is far from clear why Germany should be concerned about saving several billion euros in state support.

If GM really thinks it can raise the funds elsewhere, Berlin should be first to offer its congratulations.

9 comments

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I think the only bluff here is coming from Germany.
The Magna “deal” as such exists mainly to defend exclusively the German Opel jobs by shifting production from Opel sites outside Germany. Consider also that GM has little or nothing to gain from all from the German “deal”, and plenty to lose – as set out it would lose its intellectual property and create a new competitor where it would least want one.
GM should call Germany’s bluff. If they give Germany a bit of their own medicine, closing down the German plants to protect those in Spain and the UK would be, on the contrary, totally logical considering the difference in worker wages. Heck, if you closed the German plants in favour of the ones in Spain and Poland, Opel could almost become profitable overnight!

Posted by Sigfried | Report as abusive

Sigfried: Your suggestion of playing with plant closures to pit one gov against another confirms that you to have low comprehension of European econo-politics.

“GM has little or nothing to gain.” Do I need to remind you that GM Opel is in bankruptcy count administration? It has already lost control, has lost much of its market value. It is in no position to call anybody bluff and make them look like fools. Especially Chancellor Merkel and Opel union chiefs.

Posted by The Real Deal | Report as abusive

To Sigfried: If GM closed Opel plants want to see how fast GM sales reach zero in Europe? Germany for good or bad is one of the biggest markets for GM and Opel. If they threaten the German government, the Germans they will avoid GM and Opel en-masse.

But of course this is YET ANOTHER snafu in the world of GM…

Posted by Christian Gross | Report as abusive

Absolutely correct! Go Germany. :)
Seriously, this is a really bad behavior of GM (not surprised). I have read plenty of articles where western media uses scaremongering if a Chinese or Russian company even thinks about buying a western company. All join together how “bad it would be to allow that”. In this case, Opel being owned by GM turned out much worse.
First of all, I think I remember that Germany will take half of the layoffs, so I don’t know who said that other people will be laid off at the account of German workers. Plus, Germany is providing the money.
GM is playing games, delaying a sale it agreed in principle over 3 months ago, while Opel is operating with the 1.5bn already provided by Germany. Is this legal? Probably. Is it moral? You decide for yourself.
And then comes the question of intellectual property. If I am not mistakes, when purchased, Adam Opel gmbh was already a car company. That is why the Opel brand exists at all. It was not built from scratch by GM Europe. It already had engineers, workers, management, etc. Otherwise wouldn’t cars in Europe be sold with Chevy badge? For GM to claim that all intellectual property is theirs, it’s simply wrong. Do they claim all employees in GM Europe, including engineering and management, just do what they are told as robots, no intellect involved?
And in todays business world it is simply impossible that no intellect went the other way across the ocean. They keep these things top secret, of course. In reality, it mights turn out that GM USA used more intellect from the European engineers than it gave Opel.
I remember reading an article recently that few years ago the sales of Ford in the US significantly improved when they took the head of European sales (a European, don’t remember whether German or not) to the US. This is normal in todays business.
What isn’t normal, and what insults intelligence, is to claim that GM got nothing out of Opel engineers at all. What are they going to claim next, that Magna (or whoever buys Opel) is not allowed to continue selling Opel branded vehicles because GM was once doing that? Or that they can not own the factories and machinery? So the buyer should pay millions for just brick walls…
I wonder whether the American public would be so defensive of GM if a foreign employer in the US was toying with the lives of 50,000 workers. Or they would request the sale to be finished ASAP, especially if providing government help to that company. I think we all know the answer…

Posted by Darko | Report as abusive

I thought everyone knew that there was massive overcapacity at Opel (and not only). These sums of state aid would be required because Opel is currently losing piles of money PER DAY, and because this money is also needed to sustain this overcapapcity.

“The British labour union Unite has reportedly thrown its weight behind the private equity firm RHJ yesterday in its bid to take over Opel/Vauxhall”…and…”Magna, por su parte, contempla reducir la producción en 310.000 vehículos y despedir a 1.600 personas en Zaragoza. Además, tal y como publica la prensa alemana, la austriaco canadiense habría planteado al gobierno alemán trasladar gran parte de la fabricación de carrocería a la planta alemana de Eisenach, y a partir de 2010 fabricar el Corsa de tres puertas y el de cinco.”

So the current German Magna plan ALREADY foresees transferring Spanish and British Opel production to Germany according to the press in Germany, specifying this would be the case, for example, for the Corsa production going from Spain to Eisenach.

If this is already the current plan, why not do it sensibly, closing all German factories in favour of the ones in Spain, Poland, UK and Belgium, where in most cases wages are about half or less those in Germany? I’m sure GM could easily get 2 billion in aid from these countries, plus another 2 billion from the US government. The US currently seems to be dragging their feet about the idea, but don’t forget Friday’s GM board decision and the fact that over 60% of GM is now owned by the US treasury.

Posted by Sigfried | Report as abusive

Both the Unite workers in the UK and the UGT workers in Spain have officially endorsed the RHJ offer, as have Belgium and Poland. If all of Europe minus Germany now endorses RHJ I think this would be the wiser decision: considering the German labour costs Opel would almost become profitable OVERNIGHT! Opel needs to close all German factories immediately.

Posted by Sigfried | Report as abusive

Germany is only looking out for Germany. They will say anything, do anything, repeat things that aren’t true, repeat, repreat, repeat, just to make it appear there is some sort of momentum for the Magna deal.

Germany does not care one bit about Britain, Belgium, ans Spain. They only care about one thing, even if it means giving away the intellectual property of the company they are “saving.” Its more like blackmail.

The pro-Germany comments are interesting. They are basically threatening the company who is employing the German workers. They threaten to drive it out of business. Even if the jobs are saved, the sour-puss attitude will likely poison Opel to death. Maybe GM will realize this and let the company die…. then the Germans can all say “I told you so!”

Posted by stan | Report as abusive

“Do I need to remind you that GM Opel is in bankruptcy count administration? It has already lost control, has lost much of its market value.”

GM still has control. It has 35% outright plus half of the trust. The loss of market value is due to Germany carrying on as if Adolf were still in power.

Posted by Sigfried | Report as abusive

“If GM closed Opel plants want to see how fast GM sales reach zero in Europe? Germany for good or bad is one of the biggest markets for GM and Opel. If they threaten the German government, the Germans they will avoid GM and Opel en-masse.”

It seems obvious that there is plenty of evidence to the contrary:
1) despite being by far the most nationalist car market in Europe, makers of smaller vehicles like Peugeot and Fiat are enjoying a sale in surges of 100% (despite being foreign!)
2) eventually Germany would have to fall in line with the rest of Europe which already uses a bonus+malus system for car slaes based on CO2. This would help Opel whether or not all the German plants have been shut down.
3) Opel sales across Europe for the month of July (www.opel.com) were 104,531. Germay accounted for 32,813 of these, or 31.4%.

Therefore even if Germans were to stop buying Opel completely (and I would suggest you are mistaken), the drop in sales would be only 31.4%. Furthermore consider that Opel sales in Germany have increased by over 50% in Germany, dueto the Germany subsidy scheme, butthat this scheme is due to expire at the end of the year.

In other words, the percentage we’re talking about, in the worst of cases is a small one. If you consider Opel a business like any other (and I’m sure the investors do) then by far the most important factor here should be PROFITABILITY. The only way to achieve this and stop the hemorrage is to close all the German factories which are incredibly costly compared to Spain, Poland, UK and Belgium.

Posted by Sigfried | Report as abusive