GM Europe - A dangerous yet very interesting game begins

Neither has it been done because the parent US based company feels in a sufficiently leaner and fitter state that it no longer has to abandon its foreign based children. So, it hasn't been done for the benefit of GM's overall financial health then!

And despite views from some that would prefer to believe GM never really wanted to get rid of its European interest at all could this be a sufficiently good enough reason for the GM board to reverse what had been a reasonably sensible escape route from the very difficult problem of Europe. What is though and what reasons the change of mind may be one or indeed, all of the following ideas:

1) GM well knew that although the German government was firmly behind the decision to bring Magna in as the majority owning partner of new 'GM Europe' pressure on the European Competition Commissioner from British. Spanish and other interested European parties involved reached such fever pitch that there was absolutely no way she could allow this deal to go through or that even it already had, it would have needed to be unwound. Thus GM was faced with a potentially huge and embarrassing position deciding whether to risk waiting for the European Competition Commissioner to rule or to grab back control of the overall situation itself by pulling away. It sensibly chose the latter and in doing so the hope will be that the international company will avoid much of the adverse publicity and uncertainty that would then be attached had the European Commissioner ruled that the deal arranged with the Russian backed Canadian car parts maker Magna was after all anti competitive.

2) Nothing has changed in my view that would allow the GM parent company which has after all received significant support from US taxpayers that could allow the company to invest even a dime in any foreign subsidiaries aside perhaps from those in China where there remains a good case for growth. Thus we are unable to see any possibility that even if it GM had money to burn that the parent company intends to despatch funds to its problem European child.

3) An aside maybe, but we would also note that GM has continued to have great concerns over the Russian involvement in Magna and the potential of damage to the wider base of GM international intellectual property.

4) We do not believe GM has pulled away from the Magna plan on the basis of hoping to attract other competing offers. We reason this on the basis that any further protraction of the overall GM Europe problem can only but further damage the standing of GM internationally. In other words, GM may actually have determined to take the situation back under its own control to wind it down itself.

5) To test the resolve of both EU Commissioner and indeed, the German government itself. After all, there is the small matter of the 1.5bn euros that presumably the German Chancellor Angela Merkel will now require to be repaid by GM. Then there is the small matter of the additional EUR4.5bn funding promised to Magna by German government in return for a hugely unfair plan that was hugely biased toward retaining German jobs over those spread across the rest of Europe.

At a stroke it seems to me now that if GM or indeed, GM Europe itself was to attempt to hold a gun to the German governments seeking loans then German, British, Spanish and other governments would be forced to respond. Given that GM Europe could actually say that it intends to close almost the whole of its European operation down in an attempt to save money we rather doubt that despite making a few negative noises European governments will in the end fail to deliver. However, we know now that GM Europe is in absolutely no position to make promises to the German government or to any other government come to that over a very specific number of plants and jobs that might be protected across Europe.

Angela Merkel herself must be absolutely gutted today and it seems to me that there is now very little that she can do without being accused of breaking existing EU competition rules. But this is not time for others to smirk either. For instance, while UK Business Secretary Lord Mandelson can at least hold his head higher having behind the scenes acted to encourage the debate meaning that his influence was large and that that EU Competition Commissioner was indeed likely about to declare the Magna deal null and void, his problems over Vauxhall are probably just beginning.

So what about the future of British based Vauxhall jobs at Ellesmere Port and Luton? My view on this is that as far as Ellesmere Portis concerned nothing is changed. Some jobs will need to be lost of course, perhaps about the same number as likely suggested by Magna, but essentially with the new Astra a likely success the plant remains safe for the next three to four years. Hopefully by then there may well be opportunities to build electric cars but for now it is far too early to judge. Meanwhile I take the view that without Magna chances of Luton surviving much above two more years look even more thin.

Indeed, I can almost see the official planning application being put in for the plant to maybe be turned into housing and shops. Indeed, it had been my understanding is that closure of the Luton van plant was foreshadowed some years ago to the point that some preliminary discussions took place with the local authorities over the future use of the site on a similar basis to that of the original car plant sited next door - already a vast complex of housing and shops! Sad to say that this is good real estate and the funds that could be achieved by its sale would clearly be very useful to GM!
Those that prefer to argue that GM never wanted to rid itself of its European Adam Opel and Vauxhall interests are in my view living on another planet. Neither should anyone be in doubt that just because all of a sudden and primarily due to government inducements such as the various car scrappage schemes that have occurred across Europe that US GM management has suddenly had the wool pulled over its eyes to believe that the improved sales situation may be permanent. The bottom line is that this is a political, strategic and tactical decision! GM management know full well that effectively Adam Opel is at best walking wounded - a vast and complicated unit that needs to be drastically cut down in size and that despite good plants such as that of the UK Ellesmere Port plant look to be well placed for a few more years yet with the new Astra decisions over its long term future will also have to be made as well.

Meanwhile, ask yourself this question: even if it could and it wasn't under the thumb of the US taxpayer could GM, a still vast US based company that was after all only a few months ago on the verge of filing for Chapter 11 bankruptcy protection likely to have sufficient funds available over the next two or three years to make the necessary investment to bring Opel kicking and shouting into the 21st century? I very much doubt it - well not making cars in such an expensive place as Germany and where the strength of the Euro adds even more problems.

Indeed, whatever is done to prop up GM Europe in the short term with money provided form European governments we must brace ourselves for eventual crushing and burning of plants and the cutting of vast numbers of jobs across GM Europe at some point in the future.

How long away? That I do not know but I do know that in the meantime governments will do what they can to put that day off as long as they can. With consolidation opportunities virtually none existent and clear knowledge that Europe as a whole probably has 30 per cent to 40 per cent too much car manufacturing capacity GM management well knows that the timing to do what really is required across Adam Opel and Vauxhall - clear out maybe one third to one half of jobs and many plants Europe - isn't quite right yet. It seems to me then that decisions over timing of this are now very much in the hands of European governments.