General Motors Lurches Forward, Deciding to Keep Opel

November 4th, 2009
2010 Opel Astra

2010 Opel Astra

GM has reneged on a deal that was almost closed, choosing not to sell Opel/Vauxhall and leaving the Germans angry. The latest chapter in this complicated story came after a Tuesday GM board meeting in Detroit that put forward the new corporate strategy. The company has pledged to pay back about €1.1 billion in bridge loans from German sources.

GM’s move is a setback for Magna, the prospective buyer, and the German government, which reacted predictably, and the German unions, which have offered to strike. As we last reported, the decision comes on the heels of European Union officials questioning the deal and workers in Opel factories in other countries protesting possible job cuts.

The decision came about because the company’s fortunes have been recently improving. European sales across the board are better, and GM’s U.S. sales were up 4 percent last month—no great shakes but the first increase in 21 months. (Ford saw a 3 percent increase; Chrysler a 30 percent decline.) Also, as one commentator said,

GM decided they just couldn’t envision a future without their German subsidiary, which provides most of their presence in Europe and is the main source of their fuel-efficient global vehicle platforms.

The company desperately needs these platforms and needs to be part of the global playing field. Restructuring Opel will cost some $4.4 billion—less, the board figured, than they would have had to pay out under the Magna deal, even with help from Germany.

The case for the renege also rested on keeping the company’s Insignia and Astra cars away from the competition in Russia (Magna’s interest was financed by a Russian bank). But GM is in no way out of the woods. Paul Horrell of Top Gear put it this way:

GM needs to have a solidly profitable European arm. So difficult days await the 55,000 workers in Britain and the rest of Europe, because factories will have to be shut to make sure that Opel and Vauxhall have a cost base that’s realistic for the number of cars they can sell. And more political battles will affect the result.

Despite the furor the decision has caused and will cause, I think it makes sense for GM to keep Opel. What do you think?

—jgoods

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