Opel and Saab may be mulling an independent future, but there are huge problems with either staying part of GM or becoming independent business units, an analyst has said.
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Amid reports that GM has said that it will take “unconventional and aggressive steps” to cut costs from its European operations, Opel and Saab are formulating plans to become independent manufacturers, Global Insight auto analyst Tim Urquhart wrote in a research note.
“The message appears to be that if Opel and Saab stay under the GM umbrella they will be subject to severe plant closures and job losses. This has led to union calls for government backing for both Opel and Saab to be spun off into independent entities.
“It may be possible for their respective regional and national governments to agree to underwrite Opel and Saab’s operations as independent entities, although this would also require substantial financial commitment from GM.
“However, both companies need a workable business plan, which includes the R&D resources and funding for future models, for any plan to be sustainable.”
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By GlobalDataIn a recent statement, GM Europe president Carl-Peter Forster said: “We are faced with unprecedented challenges as the European markets are becoming dramatically smaller.”
General Motors has recently said it plans to take “unconventional and aggressive steps” to cut costs from its European operations, according to a Reuters report. Urquhart said it was believed that this plan would include large-scale job losses and plant closures at GM’s European operations, which would affect the company’s four main Opel manufacturing plants in Germany as well as the company’s other main European units such as Saab in Sweden and Vauxhall here in the United Kingdom.
GM’s European employee representatives were extremely unhappy about any plans to introduce wide-scale job cuts in their region. The chairman of GM Europe’s European Employers Forum Klaus Franz said in a statement: “The current plan could include for the Opel/Vauxhall brand and the GM/Opel/Vauxhall subsidiaries mass dismissals and probably several plant closures. This would have disastrous consequences for the GM brands and companies in Europe.”
However, it appears that both GM’s management in the United States and GM’s European employee leaders agree that the best thing for Opel/Vauxhall and Saab would be for them to be spun off from their parent, Global Insight suggested.
Franz added: “The spin-off of Opel/Vauxhall and the spin-off of Saab is the only reasonable and feasible option for General Motors which would not destroy the European operations and its European assets, There is no future with GM. We can only see any prospects with a divestment.”
According to the union representatives, GM has drawn up a restructuring plan called Project Renaissance. “Every scenario with the implementation of the Renaissance project in Europe will ultimately lead to a collapse of Opel/Vauxhall within one and a half to two years at the latest,” Franz claimed.
GM’s management released its own statement on its plans for structuring and possibly spinning off its European business operations.
“The economic crisis and its severe impact in consumer confidence and purchase behaviour will require GM Europe to take further restructuring measures, while trying to preserve as many jobs as possible,” the company said.
“The management will continue to discuss with the employee representatives the best solutions to make GM more competitive in these very difficult times. So far, we have nothing to announce.”
Urquhart said all options are currently being considered by all parties, including GM’s US management, GM Europe’s management and the relevant national and regional governments.
The idea of taking equity in Opel has been discussed as a last resort by the German regional governments and national government, according to Financial Times Deutschland.
Regional leaders from the four states concerned met last week with Opel representatives in Berlin along with new German economy minister Karl-Theodor zu Guttenberg to discuss the plan.
Global Insight thinks Carl-Peter Forster’s pledge to take “unconventional and aggressive” would appear to make plant closures and large-scale job losses inevitabile if Opel, Vauxhall and Saab remain under GM’s ownership.
Automotive News Europe said recently that GM might close at least three European plants in Belgium, Germany and the UK to compensate for a sharp drop in sales, although GM dismissed that report as “speculation.”
According to Reuters, GM is reportedly looking for around EUR2bn (US$2.56bn) of loan guarantees to support Opel’s German operations for 2009 and 2010 and up to $1bn of support for Saab from the Swedish government. The German government has already said it will look to provide up to EUR1.6bn in loan guarantees.
The Swedish government has said that it would grant SKR28bn ($2.93bn) in credit guarantees and loans to the Swedish industry in its entirety, as long as the money went to preserving jobs and improving profitability.
“In truth, the future does not look positive for either Opel, Saab or Vauxhall,” Urquhart wrote.
“It is unlikely that the UK government will take on Vauxhall in any way and it is also likely that the German and Swedish governments would only take even temporary equity ownership in Opel and Saab as long as there were sizeable financing guarantees for short- to medium-term working capital, and these are highly unlikely to be forthcoming from GM in the current environment.
“Saab in particular is approaching critical mass in terms of its viability. It only managed to sell around 92,000 units in 2008, a 34% year on year drop from the 124,000 units that it sold in 2007, and the brand is also struggling with an ageing two-model line-up in segments that are increasingly under attack from various SUVs, CUVs and other micro niches.
“Any agreement with GM to spin off Opel and Saab would also require an ongoing deal with GM powertrain to supply engines for any ongoing production efforts [GM CEO Rick Wagoner confirmed on Tuesday night any Saab buyer would get access to GM technology – ed], and in addition it is highly unlikely that Opel, let alone Saab, would have the scaleability to self-fund new model development and eventual new powertrain development, which would require the company to eventually find a technical partner.
“In short these companies do not look good bets for public money at the moment, although it appears that the various parties are determined to find a away to avoid the kind of job losses that GM appears to be planning.”
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