Blog: Dave LeggettThe new game in town: 'What If?'

Dave Leggett | 18 November 2008

The turmoil in Detroit is now causing bigger waves to ripple elsewhere. And it's not just, 'We want a fat soft loan like wot they got' which was the rather crude, if brutally honest, message that recently came out of the European automakers' trade association ACEA.

I spent a bit of time yesterday on the phone with a journalist in Brazil and his questions were the same as many doing the rounds this week in Brussels, Berlin, Stockholm and I dare say plenty of other places across the globe. They boil down to this: what if? What if GM or Ford really goes down? What happens to the local factory that makes GM/Ford cars?

I was having another conversation with someone recently about Delphi. It's still in Chapter 11, but I was told you wouldn't know it to talk to the European Delphi people who haven't really been much affected. And, the Delphi Euro-people maintain, it's actually been a positive thing for their business in the round. Maybe.

But car companies in Ch 11? There has to be a strong suspicion that it isn't exactly a marketing positive. As a core brand value it kind of sucks. In fact, just the continual discussion in the media of how GM is near to bankruptcy in the US will be almost as bad as actually being bankrupt. Which is why something that looks credible needs to be mapped out in the US double-quick, all relevant parties - companies, UAW and lawmakers - appreciating the urgency of the situation.

Okay, back to ops outside the US. Units that lose money within a bigger group enjoy a certain degree of protection from the elements. Losses can be absorbed, quietly even. The shareholders might buy into the idea that, say, turning around Saab is not an overnight job (yup, it could take two decades I guess...). Jam tomorrow. Be patient. And there's the vague but nevertheless seductive and weighty idea in the background that maybe it's a truly great brand that will one day fly, value finally unlocked.

But, abruptly take away the parent and maybe you have something that is a little bit exposed to the elements. If you're in standalone profit, it might not be too bad initially, disentanglement issues notwithstanding. However, loss-making firms may suddenly be faced with severe liquidity issues. It could get messy, financial flows needed to sustain operations severed, unseemly arguments developing over who owes who what.

GM Europe lost USD1bn in the third quarter of this year. Hence, alarm bells have been ringing in Zurich and Russelsheim now that GM is in such dire straits.

One curious strand to this whole thing is that it brings to a head certain political realities.

Yes, maybe the EU Commission should be involved in assessing the pan-European industrial position and brokering/funding loans to automakers. But when it comes to crunching the sums and looking at where the companies and jobs are, another stone presents itself that no-one in the thick of it wants to leave unturned - national governments. Opel has been quick off the mark to extract a guarantee from Germany's government. If GM goes belly up, there will be German government money for Opel (only for the German bits though). 

There's an even more potentially intriguing situation developing in Sweden. Think about it. Ford wants to sell Volvo but cannot (though it has perhaps not considered that a nation would buy it). GM might not argue too much if someone were to present a fat cheque for Saab. Governments, as we have seen with the banks, appear to access bottomless pits of money when push comes to shove (or they borrow). The Swedes are historically not exactly averse to a bit of state involvement in their economy. What are they waiting for! Perhaps the Swedish government might look for a Swedish solution that also involves, say, the Wallenbergs to spread the risk about. And by the way, before you say I'm barking mad to even entertain such outlandish possibilities in here, a German academic institution said earlier today that Opel should be nationalised.

Okay, maybe thngs will calm down a bit. But this 'what if?' game perhaps gets people thinking and pushing parameters for discussion way beyond where they were just a few months ago. Governments and the people in the car companies want to stay ahead of the curve, be ready for the worst, not get caught with their pants down. And there is an industrial atmosphere developing generally that isn't necessarily for the best in the long run: 'You gave all that to the banks! What about us? C'mon!'

Strange times and the 'what if?' game in the auto industry globally has got legs I reckon.

EU: Automakers wait on financial aid decision


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