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NINETY EIGHT REGENCY

GM must rebuild German trust if Opel is to survive

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COMMENTARY

GM must rebuild German trust if Opel is to survive

AUTOMOTIVE NEWS EUROPE

NOVEMBER 4, 2009 13:39 CET

Turn back the clock to a year ago and this is what Automotive News Europe was reporting on Opel's future:

• General Motors Europe is reaching out beyond Germany in search of government help to avoid a liquidity crisis at its European subsidiary Opel.

• Informal approaches are being made to governments in Poland, Belgium, Spain and the UK.

GM's decision yesterday to turn down an offer from Magna International Inc. and keep Opel means the U.S. automaker must secure 3 billion euros in European funding to turn around its European operations. But some key things have changed in the last 12 months for GM, Opel and its UK-based sister brand Vauxhall.

1) Back then, GM North America was looking for U.S. aid to avoid bankruptcy. Despite having to file for Chapter 11 this summer, a new GM quickly emerged with a much better balance sheet and a pile of government cash (none of which can be used for its business outside the United States).

2) New-car sales in western Europe were expected to drop to roughly 11.5 million units in 2009 compared with about 13.6 million in 2008. The forecast sales total for 2010 was then 10.9 million. Now it looks like western Europe's 2009 sales will drop fractionally to 13.2 million units and will reach 12 million next year.

3) Last November, Opel had just launched the Opel/Vauxhall Insignia and the Opel/Vauxhall Astra was more than a year away. Since then the Insignia has been named 2009 European Car of the Year and unit sales are expected to top 150,000, which is 30,000 more than planned. The new Astra is about to arrive in showrooms and has the potential to give Opel another winner.

The bottom line is that GM is alive and kicking; the European market did not collapse; and Opel's product lineup is even stronger than anyone could have predicted.

Time for diplomacy

The problem is that none of this will help GM repair its badly damaged relationships with the German government and the country's powerful IG Metall union.

Germany and the union wanted Magna to control Opel. It was key to getting Germany to provide billions in loan guarantees. Now if GM wants German aid its negotiators will have to share a table with German Chancellor Angela Merkel and Opel union boss Klaus Franz, both of whom had their credibility crushed by GM's abrupt change of course.

Perhaps the threat of German plant closures and massive job cuts will push the sides back together. Regardless, GM will need a lot of diplomacy to regain the confidence of Germany and the unions because without their help Opel will find it tough to survive.

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