Share this story!            

U-turn for GM on Opel reflects confidence in global strategy

WASHINGTON: The stunning reversal by General Motors on the sale of its European division reflects renewed confidence in the US auto giant’s global strategy and the need for small-car technology, analysts said.

GM’s U-turn on the planned sale of Opel/Vauxhall stunned political leaders and others in Germany and the rest of Europe, but many analysts said it was the right move if GM wants to remain a leader in the global auto sector. “Keeping Opel was the right thing for GM’s global enterprise to do,” said auto analyst Aaron Bragman at the consultancy IHS Global Insight.

“Opel is a critical piece of GM’s global empire, providing as it has the platforms for a number of the company’s global vehicles. Losing Opel, and a significant chunk of the European market, was a desperation strategy that GM apparently feels it is secure enough now not to need.” Other analysts noted that GM needs the European division not only for its large market but for its expertise in small-car technology that is important for the US market as well. “Europe is a major market; how can you be a global automaker without a significant presence there?” said Edmunds.com chief executive Jeremy Anwyl. “A critical asset of Opel for GM is its small-car expertise. With the likelihood of increasing fuel prices, expertise in small cars has to be key for the car industry moving forward, and GM can’t abandon the experience it has picked up in Europe.”

GM, which was struggling with a bankruptcy reorganisation backed by the US and Canadian governments, had initially agreed to sell a 55 percent stake in Opel/Vauxhall to a consortium headed by Canada-based auto parts maker Magna and its Russian banking partner Sberbank. GM explained the shift by underscoring “an improving business environment for GM over the past few months, and the importance of Opel/Vauxhall to GM’s global strategy.”

Juergen Pieper, analyst for Metzler Bank, said GM’s situation has shifted now that it has come out of bankruptcy with US government support, and sees a rebounding automobile marketplace. “GM is acting more like a normal company and is starting to look towards the future,” he said. One major question for GM is how to come up with the cash — an estimated three billion euros or $4.4 billion — needed to restructure European operations, and which factories to shut down in the new plan.

Business professor Terrence Guay at Penn State University said he believes that “more of the layoffs will go back to Germany,” since GM ended the deal backed by the German government that helped save jobs in that country.

“The least-efficient factories are based in Germany,” he said. Still, he said that GM “will need financing support from the European governments. The question is how helpful Germany will be.”

Bergman said that the source of GM funds for restructuring “is still something of a mystery,” because the money from the US government cannot be used for overseas operations.

“Some creative accounting may need to be done at GM if it is to reorganise its European operations,” he added. The White House on Wednesday said it had nothing to do with the decision. “Business decisions by GM are made by the corporate leadership at GM and not by anybody at the White House,” spokesman Robert Gibbs told reporters.

But Peter Cohan, a management consultant at Peter Cohan & Associates, said it would be hard to imagine GM making such a decision without political approval by the government, which owns a majority stake. “It’s almost impossible for them to have made a decision without any communication with the White House,” he said. “But from a political optic, its better to pretend the White House is not making the decision. It would be politically unpopular to run GM on a day-to-day basis.” afp

Home | Business

Share this story!