COMMENT: GM looks to the future over Opel/Vauxhall

By Dave Leggett | 4 November 2009

So, there you have it - the final twist in the tail. GM has, at the eleventh hour, done an abrupt U-turn in order to avoid doing something that it never really wanted to do, but felt that it had to do when adverse financial circumstances dictated that it file for Chapter 11 bankruptcy in the US earlier this year.

The signals in recent weeks suggested that while the proposed deal for Opel/Vauxhall to be sold to a consortium led by Magna was indeed still on the table, commitment on GM's part was wavering. The signing is 'imminent' we were told by reliable sources inside GM Europe. And then the signing didn't actually happen.

We then witnessed the European Commission taking a more active interest on competition grounds over the role of the German government and its apparent preference for a Magna bid that would protect more jobs in Germany than alternatives. Would or could the deal be blocked or seriously delayed by Brussels? Perhaps that was unlikely with so many jobs at stake and worries rising over how much cash Opel/Vauxhall has, but it provided another late complication.

The drawn out nature of the negotiations tells its own story. In business, if there is a compelling case to do a deal and all sides are committed to it, it generally happens. This one was always complicated on all sides. If a deal had been done, it might have been marked by one of the most downbeat ceremonies ever, everyone struggling to raise a smile.

You can imagine the second thoughts they might have been having at Magna, too. Sure, this was a way for the always ambitious 'Tier 0.5' player to make the leap and become a fully-fledged OEM, but some of Magna's OEM customers were voicing concerns over dealing with a new Magna that is both an OEM as well as a systems integrator and parts supplier. And it was always going to be one hell of a challenge for Magna's management to pull off the successful restructuring of Opel/Vauxhall in Europe and square off the Russian side of things - where there were unresolved concerns over the rights to models developed  by GM-Daewoo in South Korea.

Even worse in the short-term, the European Commission might have ruled that some of the state aid from Germany should be immediately paid back by the new owner. A few people at Magna, while understandably disappointed at the outcome, may also feel a little bit like they have been let off the hook. They can also get back to the fairly big task of making their core business work now, this monumental diversion for management time now apparently over. The public reaction of Magna to GM's decision is notably positive and devoid of any hint of rancour.

But the view from GM HQ in Detroit must have been what finally did for the sale. Not only has a slimmed down GM come out the other side from Chapter 11, but many at GM increasingly questioned the wisdom of selling off its core European business. Europe is a key market for any global player in the auto industry and Europe has also been a key engineering centre for GM product development. Where do you want to be in five or ten years' time? Offloading Opel/Vauxhall looked like a backward step for GM, strategically. And a resurgent Ford, building on its global operations of which Europe is a vital part, must have also not exactly gone unnoticed at the RenCen.

Is the long-running saga now truly over? Er, no, not quite. The position of the trust that took control of Opel when GM in the US went into Chapter 11 and that of the financial aid-providing German government could yet produce some fireworks.

There's also still a major restructuring job to be done for GM in Europe and as we have already seen, the politics at work in Europe could play a big part in that. More negotiations and some disagreements could be coming. How much will it cost for GM to retain Opel/Vauxhall and whose taxpayers are paying for what support, exactly?

Big questions remain, but the proposed Magna deal is dead. GM is now saying that it wants its existing European Opel/Vauxhall operations - albeit restructured - as a part of its future. That is a big change from being on a conveyor belt to being sold off and it's a new reality that everyone has to take full account of.

Dave Leggett

See also: US: General Motors decides to keep and restructure Opel