The Great Debate UK
The new start at General Motors isn't as fresh as it looks. Last year's quick-rinse bankruptcy washed away almost $90 billion of debts and other obligations. But there are still wrenches in the Detroit automaker's gears that its Chapter 11 restructuring was supposed to remove more cleanly.
Sure, in the six months since emerging from bankruptcy GM almost eked out a profit before interest and taxes, after stripping out a couple of big one-off items. As the economy improves, GM should have a good shot at climbing out of the red before 2010 ends.
But costs remain high, just shy of the $63 billion old GM spent in the admittedly slower first half of 2009. And the Motown manufacturer's factories produced at just 61 percent of capacity in the fourth quarter. That's encouraging in a way, as it means GM has room to grow as car sales pick up. But a rough-and-ready calculation implies that for the rate to reach 100 percent, annual U.S. car sales would have to hit 18 million -- more than at the height of the boom. In other words, GM still has fat to trim.
GM also still has pension problems. Retiree funds are currently short by some $27.5 billion, three-fifths of which is in the United States. GM already reckons it will contribute $43 billion to its U.S. pensions over the next five years. That could rise by 2013 if the plans remain underfunded.
GM's Lordstown, Ohio assembly plant has become a symbol of both GM's hard times and its best hopes for a turnaround after a $50 billion federal investment. A recent bump in sales because of the government's "Cash for Clunkers" program has allowed GM to call back more than 1,000 workers from layoff. So it was a natural backdrop for a return visit by President Obama, who held a roundtable with workers and then gave a stump speech from the factory floor for his economic policies and health care reform. But this is not your father's GM anymore and nothing about it as clear-cut as it seems -- even if you are the leader of the free world and head of the government that holds a controlling stake in the automaker. At one point, Obama -- veering from his prepared remarks -- suggested that health-care reform would allow the UAW-represented workers in the audience to negotiate better wages.
“Think about it. If you are a member of the union right now, you’re spending all your time negotiating about health care. You need to be spending some time negotiating about wages, but you can’t do it," he said.
Lord Mandelson was in buoyant mood on Thursday night.
The future ownership of British car-maker Vauxhall had finally been decided. U.S. giant General Motors agreed to sell its European unit — which includes Vauxhall — to Canadian car parts maker Magna and its Russian backers. According to Mandelson, this was good news for the Vauxhall’s 5,000 British workers as it removed the uncertainty over their futures. Everyone can get back to work making cars and live happily ever after.
With the Opel sale grinding along, the U.S. automaker is also in the process of offloading its Saab brand to luxury sportscar maker Koenigsegg.
Financing is the major sticking point in the Saab sale process. Koenigsegg -- backed by U.S. and Norwegian investors -- reached a deal in June to buy Saab from GM but the process then stalled.
Good news: global car capacity is being cut by 700,000 vehicles. Bad news: the company doing the cutting is the world's most efficient manufacturer, Toyota.
Across the world, governments are pledging money to keep local plants open, mostly plants which have no long-term future, and which are far less efficient than the production line in Japan that Toyota is closing.
John Smith (no relation, but I'm impressed by his negotiating) maintains in his blog that GM will compare the latest Magna offer with the proposal it has on the table from Belgium-based financial investor RHJ International.
It's not often you get to lift the hood and watch a power struggle going on in the engine room of General Motors. But the vice-president of GM Europe, John Smith, has just provided tantilising details of the arguments over the rival bids for Opel/Vauxhall, the main European arm of the fallen U.S. auto giant. Smith is the chief negotiator on the sale of Opel.
In a blog apparently intended to reassure Opel staff, but accessible to the public, he insisted GM had not specified a preferred bidder. But he made clear his own preference for the bid from Belgian financial investor RHJ International, which is loosely related to U.S. private equity fund Ripplewood, over the offer by Canadian-Austrian car parts maker Magna and its Kremlin-backed Russian partner Sberbank.
Political and economic logic are set to collide in the byzantine decision-making over the future of German carmaker Opel, the main European arm of fallen U.S. auto giant General Motors.
If politics prevail, as seems likely, the cost to German taxpayers will be higher and the chances of commercial success lower.
The aim of the Berlin government and four federal states, which are sustaining Opel with bridging finance, is to save as many German jobs and production sites as possible. That makes political sense ahead of September's general election. But the business logic is that only a greatly slimmed-down Opel can survive in an industry with chronic overcapacity.
In theory, it is up to GM's board to choose among the three offers it expected to receive on Monday from Canadian-Austrian car parts maker Magna <MGa.TO>, Belgian financial investor RHJ <RJHI.BR>, and, less plausibly, Chinese state-owned auto maker BAIC. But there are several other powerful players with a say. They include the trustees responsible for the company since GM entered U.S. bankruptcy in June, the German federal and state governments, Opel's works council and, last but not least, the European Commission, which must approve the restructuring plan as a condition for authorising the state aid.
- Professor David Bailey works at the Coventry University Business School. The opinions expressed are his own. -
General Motors announced its exit from Chapter 11 bankruptcy protection on Friday, and pretty speedy it was, too. The firm has quickly transferred its good assets to a new carmaker (“new GM”) which is majority owned by the U.S. government, and the whole bankruptcy process has taken just 40 days.
from The Great Debate:
Chairman Mao used to say the truth is always kept by the minority.
A little-known private Chinese machinery company's bid for a GM marque has been sneered at by even the patriotic Chinese media, but the deal could succeed where mightier plays like Chinalco's for Rio Tinto have failed.
True that private sector firms face an uphill battle in China against more dominant state-backed firms, but it seems like double standards when Western observers, who extol the virtues of the private sector taking the driver's seat, praise Chinalco's deal but dismiss Tengzhong's bid for Hummer.