Commentaries

Will GM pick a German to run GM Europe?

It looks as though General Motors will soon be looking for a new executive to run GM Europe, which includes its troubled Opel unit.

The U.S. carmaker needs someone with credibility within Germany as well as within the car industry if it replaces GM Europe head Carl-Peter Forster.

There are a few German industry heavyweights about who could do the job.

How about former Continental CEO Manfred Wennemer, who knows a lot about tyres and auto parts? Or Porsche’s former boss and golden-boy Wendelin Wiedeking? Or Daimler’s Wolfgang Bernhardt, who recently took over running the Mercedes-Benz van unit?

All have the right credentials, although Wiederking may have too much baggage (and too much money after his pay-off from Porsche to want to do the job).

Bernhardt would be a good bet, but what would GM have to offer him to lure him away from his vans?

Lower Opel costs to help government aid

General Motors’ decision to scrap the sale of Opel rests on the carmaker’s calculation that the hole in its European unit’s finances is not as deep as previously feared.

Governments should welcome the lower demands on taxpayers with open arms. But there is still some horse trading to be done to get everyone on board. 

GM’s chief executive Fritz Henderson is due to present his plans for Opel next week. He has good reason to be bullish.

GM’s previous forecast that Opel needs $3.3 billion to keep going until 2011 appears to have been sharply revised. Some in the industry think the amount required could be nearer 60 percent of that figure — some $2 billion.

Like other carmakers, European scrappage schemes and improved economic conditions have allowed Opel to significantly reduce its inventory. Cars that were sitting on the tarmac have been sold, putting much-needed cash back into the carmakers’ coffers.

Moreover, GM itself is doing better than originally expected in the United States since emerging from bankruptcy in July. This has given it the confidence not only to scrap the sale of Opel to a consortium led by Magna, the Canadian auto parts maker, but also to repay the remaining 900 million euros on a  bridge loan from the German government.

Earlier concerns about GM using U.S. taxpayer funds to prop up its units overseas seem to have eased. Henderson is now confident he can dip into GM’s U.S. pocket to shore up Opel.

Germans vote for change; will they get it?

Germans have voted for change. A centre-right government with a clear parliamentary majority will replace the ungainly grand coalition of conservatives and Social Democrats that ran Europe’s biggest economy for the last four years.

This should mean an end to ”steady as she goes” lowest common denominator policies, and at least some reform of the country’s tax and welfare system. The liberal Free Democrats, who recorded their best ever result with around 14.7 percent, will try to pull the new government towards tax cuts, health care reform, a reduction in welfare spending and a loosening of job protection in small business.

Conservative Chancellor Angela Merkel, a cautious centrist, made clear in her first post-election comments that she she would not allow a radical lurch to the right. She promised to be the ”chancellor of all Germans” — old and young, entrepreneurs and workers — and said the conseravtives would be sufficiently dominant in the new coalition to prevail “in questions that affect social balance”.

The new government faces tough economic challenges in what is bound to be a more polarised political atmosphere, with the Social Democrats in opposition. The economy is expected to contract by at least 5 percent this year, and export-led growth is likely to return only slowly. Unemployment is set to explode in the coming months as short-time work schemes run out. The budget deficit is set to top 6 percent of gross domestic product next year, more than twice the EU limit. So 2010 will be an extremely difficult year. But there are some problems that are even more urgent.

The first big choice involves Germany’s ailing banks. Outgoing Finance Minister Peer Steinbrueck admitted last week that the public-owned regional Landesbanks “continue to pose an enormous systemic risk to our market”. The outgoing parliament passed a virtually useless “bad bank” law meant to encourage stricken financial institutions to put their toxic assets into state-guaranteed special purpose vehicles. The banks have so far spurned the system because it leaves the risk of losses with them rather than with the taxpayer.

Merkel and her new partners need to amend the law so that the state takes more of the risk, otherwise Germany faces a future of “zombie” banks that are too burdened with liabilities to lend to the real economy. That won’t be popular, with the left bound to claim that taxpayers are being forced to bail out wealthy bankers.

Fixing the banks is more urgent than cutting taxes or curbing public spending to revive the economy. That also means merging the Landesbanks, shrinking their activities and privatising as much as possible. The Germans must also be ready to allow healthy foreign banks to buy up sickly German ones. That is the logic of the European single market, to which a centre-right government is likely to be more committed.

Germany will have to change Opel deal after election

It looks increasingly clear that Germany will have to change its deal to aid carmaker Opel once Sunday’s general election is out of the way.

The European Commission has signaled to Berlin that promising 4.5 billion euros in loan guarantees to only one of the two bidders for General Motors’ European arm to preserve all four German production sites and most Opel jobs in Germany may breach EU rules on state aid to industry. EU regulators want to know why Chancellor Angela Merkel and four German states offered the money to back car parts maker Magna’s bid but not for financial investor RHJ International’s, and on what conditions. 

With Britain, Spain and Belgium’s Flanders region — all hosts to Opel production sites – crying foul, the EU executive is under strong political pressure to intervene. British Business Secretary Peter Mandelson has questioned the viability of Magna’s business plan in a letter to the Commission.  Brussels reaffirmed in a statement on Wednesday that Germany could not attach political conditions to the company’s restructuring plan or tie its hands. 

The European Commission will not accept that State aid granted under the Temporary Framework is conditional upon the implementation of a specific business plan, previously discussed and/or negotiated with Member States, which defines the geographic distribution of restructuring measures, without leaving to the beneficiary undertakings the possibility to revise their plans if necessary.

State funding under the Temporary Framework is meant to tackle the financing problems due to the credit crunch, and cannot be used to impose political constraints concerning the location of production activities within the internal market. The beneficiary undertakings must therefore retain full freedom to develop their economic activities in the internal market.

Even the Commission’s German vice-president, Guenter Verheugen, long regarded as the German car industry’s best friend, has told his countrymen that one EU country cannot be allowed to buy a favourable solution for its workers at the expense of another. He has offered the Commission’s help to bring all the Opel host countries together and work out a joint state aid plan for Opel to be monitored by Brussels.

In theory, that means Berlin ought to sign Magna and its Russian partner Sberbank a blank cheque which might lead to a plant in Antwerp or Luton or Zaragoza being kept open instead of an assembly line in Bochum, if the Belgian, British or Spanish site is more efficient. That would be hard for German taxpayers to swallow.

Should Volkswagen demand a Magna Carta?

Magna International seems to be taking seriously threats from Volkswagen to pull its business following the Canadian car parts maker’s Opel victory.

Magna’s co-CEO Donald Walker is saying that after talking to them, most of his other customers are happy that the car parts group – which along with Russian backer Sberbank is buying a 55 percent shareholding in GM’s Opel — is able to protect their technologies.

Apparently VW is still unconvinced, so Magna will “finalising the internal procedures” and will have more talks with the German carmaker.

Walker is also stressing that Magna is not looking to compete with its clients but is simply aiming to get a good return on its investment in Opel, reiterating that Magna will remain a parts company.

There seems little doubt that Magna can manage potential conflicts, after all it already builds cars for BMW, Chrysler and Mercedes as well as making parts for Toyota, Ford and VW.

But to say Magna won’t be competing with other carmakers once it starts building Opel cars is stretching the point. Why else would you buy Opel if it wasn’t to take market share from VW and others?

Is Goldman’s Chinese convertible really a taxi?

The number of London’s trademark black taxis booked and waiting outside the European headquarters of Goldman Sachs — meters running — was once used by some as a barometer of the health of London’s investment banking business.

When times were good, the queue was long and it was impossible for anyone else in the vicinity to hail a cab. But when the fees dried up, or markets turned, the cabbies who’d been at Goldman’s beck and call suddenly had to find new customers.

Last year, Goldman was reported to have stopped free taxis home for staff working in the office after 9pm, extending this to 10pm.

Now it looks as though taxis may be in vogue again at Goldman, at least indirectly.

Goldman Sachs Capital Partners — is that a taxi in the picture on the website? — now appears to be following in the tracks of the maker of many of London’s black cabs by cosying up to Geely Automotive — China’s 10th largest vehicle maker.

For Manganese Bronze — which has made more than 100,000 London taxis at its Coventry plant since 1948 — it was a case of turning to Geely for help and selling it a stake as well as entering a joint venture.

But in this case, it is Goldman that is providing the money — buying about $250 million of convertible bonds and warrants. Geely will use the proceeds to ratchet up its production.

China picks European cars off scrapheap

Chinese carmakers are seeking to step into the gaps left by U.S. companies in Europe — but while acquisitions may give them access to badly-needed technical know-how, global brands and exposure to new markets, the question is whether they have learnt from past failures.

With China now the world’s largest car market, it’s no surprise that Chinese carmakers — which have few if any really solid brands within their home market — want to start making more of a mark.

In theory, foreign acquisitions offer a quick way to do so. Meanwhile the credit crunch has thrown world-renowned but now distressed car marques such as Volvo, Opel or Saab onto the block at what look like rock-bottom prices.

The worry is that Chinese carmakers haven’t always found it plain sailing abroad. SAIC Motor Corp is still feeling the pain of buying into Ssangyong Motor Co of Korea. Ssangyong has struggled to compete as South Korea’s smallest carmaker, failing to develop new models and running out of cash. A debt-for-equity swap threatens to slash the Chinese company’s holding in the South Korean carmaker from just over 50 percent to around 10.

Chinese companies have had more success when they have simply acquired technology and taken it back to China. SAIC had much more success when it bought Britain’s MG Rover. In that case, SAIC closed most of the UK manufacturing and used the know-how to launch a mid-range sedan called the Roewe. This has proved successful in China.

It looks as if Chinese manufacturers are trying to emulate SAIC’s Rover experiment rather than its Ssangyong adventure.

Although Chinese carmakers looked at Opel, they backed away from trying to buy it outright. Geely Automotive has now stepped forward as a possible partner for Opel’s new owner, Canadian car company Magna. But it looks as if its role may be more as that of a supplier of manufacturing capacity than an outright owner of the brand.

Re-elected Barroso faces market challenge

Jose Manuel Barroso promised the European Parliament that as re-elected president of the European Commission he will have more authority to fight for Europe and defend its single market against economic nationalism.

But after five years of toadying to the big member states, he will need to show more spine to enforce state aid and competition rules on Germany, Britain and France in the teeth of strong national financial or commercial interests.

The conservative former Portuguese prime minister, backed by all 27 EU governments, won an impressive absolute majority of EU lawmakers — more than the simple majority he required. That gives him a stronger hand when facing inevitable pressure from the big boys over the carve-up of key Commission portfolios.

Recent Commission moves to query state aid to banks (such as Dutch guarantees for ING) and scrutinise public funding of auto industry rescues (Germany’s bung for Opel) are encouraging. But it remains to be seen whether Barroso, now he is no longer reliant on them for re-appointment, has the character to stand up to Angela Merkel, Nicolas Sarkozy or Gordon Brown on politically sensitive cases. In his first term, he often appeared to be a trimmer, a multilingual chameleon.

On paper, the Commission has the power to force the break-up or shrinkage of state-aided banks and prevent governments using public funds for industry to distort competition.

Barroso should start by appointing strong, independent commissioners in charge of competition and financial regulation. He must rebuff French pressure to take the policing of state aid away from the rigorous EU competition department and give it to a more indulgent super-commissioner for industry.

He cannot choose whom member states send as commissioners, but he can decide what jobs to give them. He should put the most effective survivors of his current team, Spain’s Joaquin Almunia and Finland’s Olli Rehn, in key roles to guard the level playing field for business and improve financial regulation, without yielding to special interests or anti-capitalist overkill.

German Opel aid tests EU rules

The credibility of the European Union’s single market and state aid rules is at stake over Germany’s selective offer of taxpayers’ money to preserve Opel factories and jobs on its soil.

On the face of things, it looks like an open-and-shut breach of state aid rules. General Motors agreed last week to sell 55 percent of its European arm to a consortium of Magna and Russia’s Sberbank under massive pressure from Berlin.

German leaders have said publicly that they promised 4.5 billion euros in loan guarantees for the Magna-led bid — but not for rival bidder RHJ International — because it would preserve all four production sites and as many jobs as possible in Germany. The European Commission says:

state aid cannot be subject to additional non-commercial conditions concerning the location of investments and/or the geographic distribution of restructuring measures.

QED? Well, not quite.

The German authorities are unlikely to have been naive enough to put any such linkage in writing. And without such formal evidence, the EU competition regulator may find it hard to deny approval for the rescue. After all, didn’t French President Nicolas Sarkozy get away with a 6-billion-euro rescue loan to French car makers Renault and Peugeot in March on the unwritten (but loudly proclaimed) understanding that they preserve production sites in France?

European Competition Commissioner Neelie Kroes says she will scrutinise closely whether Germany set “de jure or de facto” conditions for helping Opel, whether aid was offered to only one bidder, and why its business plan was considered preferable. Kroes has a second possible line of attack, since Brussels must be convinced that a rescued Opel will be viable in the long run. She should talk to the German government’s own trustee, who voted against the Magna sale, questioning its chance of survival due to its small size and chronic overcapacity in the sector.

Can Magna keep its model juggling act with Opel?

Cries from Volkswagen about pulling its business from Magna if the Canadian car parts maker ended up owning a stake in GM’s former European unit Opel ring somewhat hollow given the success Magna has had in juggling its customers’ different needs so far.

Even so, Magna is trying hard to keep its customers — which also include Toyota, Ford and BMW — happy by vowing to ringfence Opel from the rest of its business now it has won the long battle to buy GM’s former European unit.

Sure, these carmakers will want watertight assurances over the supplier’s tie-up with one of their competitors. But they can’t have it all ways if they want to continue to outsource their parts — and even the construction of whole cars — to keep their costs down.

Given the tortuous journey to agreeing a buyer for Opel, Magna’s customers have had plenty of time to work out what guarantees they will want, although it is only now that a deal has been done that they will get to hear the full details of the arrangements between GM, Opel, Magna and its co-investor, Russia’s Sberbank. Magna will have to show them it can treat its own car manufacturer like any other client.

Magna’s Steyr unit already produces the BMW X3, the Mercedes-Benz G-Class, the Chrysler 300C and both the Jeep Commander and Grand Cherokee for three different customers. So it is in a fairly strong position in any discussions — after all the major carmakers are heavily reliant on their parts manufacturers and switching supplier is not an easy option by any means.

But it remains to be seen for how long Magna retains a clear separation between its traditional parts business and its new car making operation Opel. It may find the move up the value chain to its liking.