GM pulls the plug on Opel / Vauxhall Sale. Where next?

By David Bailey on Nov 4, 09 01:18 PM in Automotive

In a shock statement, and after six months of haggling and its fourth meeting on the issue, the GM board yesterday announced that it was cancelling plans to sell its European car operations including Opel and Vauxhall.

GM said in a statement that its board had made the decision in light of "an improving business environment for GM over the past few months". Earlier this year GM had agreed to sell Opel and Vauxhall to Canadian car parts firm Magna.

Part of the GM board was always against the Magna plan and the deal had been effectively rammed down the throat of GM by the German government which had offered €4.5bn (that's around £4bn) of loans to support a Magna bid, hoping that this would minimise job losses in Germany. GM probably wanted a deal with RHJ, the Belgian based firm, but German cash wasn't on offer for that - probably in breach of EU state aid rules.

But GM was always unhappy about sharing technology and brands with Magna, fearing that Opel might compete with the GM brand Chevrolet which is doing well in Russia, and that it could lose control of key technology that Opel is developing. The latter is critical to GM's need to develop smaller, energy efficient cars, especially as it is under pressure from the Obama administration to cut emissions.

In other words, GM Europe has turned out to be of critical importance to GM after all. In addition GM now thinks it can afford to keep its European operations given that it has emerged from Chapter 11 leaner and fitter and given that the business environment is picking up.

This throws up a whole load of questions about GM Europe's future. For example, in the short term a €1.5 billion bridge loan expires at the end of this month which GM will have to re-finance.

GM stated yesterday that it would now "initiate a restructuring of its European operations in earnest" and seek aid from the German government, and other European states. This risks degenerating into the US based transnational playing off governments in a divide-and-rule game to maximise the subsidies it gets.

The process of GM-downsizing (and indeed auto industry downsizing more generally) in Europe now needs to be effectively overseen by the European Commission to stop such wasteful subsidy competition and to avoid a repeat of the situation where Germany tried to trump everyone else by offering huge sums.

In Britain's case, the union Unite and the British government had already done most of the work in brokering a deal with Magna to safeguard as many jobs as possible in the UK. In return for a two-year pay freeze Magna had promised no compulsory redundancies and some 600 job cuts - well down on what was initially expected.

Lord Mandelson had also indicated a desire to support Vauxhall operations in the UK with financial aid if needed. Both will now need to repeat this work with GM, but as one commentator noted, "better the devil you know".

My first preference was always to keep Vauxhall part of GM to keep access to key new electric vehicle technology coming from the US and to share platform costs across different brands. The British government was slow off the mark in recognizing this but now has a chance to safeguard Vauxhall's position.

There is a deal to be done here - GM should ultimately be able to recognise the efficiency of Vauxhall's operations in the UK if they are effectively backed by unions and the British government. There is also a real chance of bringing electric car production - in the form of the European version of the Chevy Volt - to the UK.

Things actually look brighter for Vauxhall after this decision, if unions and the governments can strike a deal with GM. There is every chance they can do so.

Professor David Bailey works at Coventry University Business School.