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GM to remake Opel on its own

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GM to remake Opel on its own

Carmaker drops bid for European help, will use $4 billion to restructure subsidiary

Christine Tierney and Robert Snell / The Detroit News

General Motors Co., feeling financially stronger after returning to profit, will use $4 billion of its own money to press ahead with the restructuring of its German carmaker, Adam Opel GmbH.

GM announced Wednesday that it would drop its request for European aid for Opel, a week after the German government rejected GM's application for loan guarantees.

The U.S. automaker's decision frees GM to restructure Opel the way it wants to, unhindered by promises to governments, industry analysts said. The decision also signals that GM believes it has the resources to tackle Opel's problems.

"I don't think they would have made this decision were they not confident they could manage this on their own," said Joseph Phillippi, president of AutoTrends Consulting Inc. in Short Hills, N.J.

But GM's decision also carries risk. By spending its own money on Opel, GM may find itself with a thinner cash cushion if U.S. auto sales don't recover this year, said auto analyst Rebecca Lindland at IHS Global Insight.

"No doubt it will cause them to have some constraints. That happens anytime you suddenly have to spend $4 billion," she said.

GM already had pledged to cover half of Opel's restructuring cost. And it had offers of support from other European governments and German states with Opel factories, but GM Europe President Nick Reilly said the company now wouldn't be able to line up the financing quickly.

The Detroit-based automaker has spent months trying to secure loan guarantees in Europe. "We need to put this behind us and keep going," Reilly said.

GM had hoped the German government would come through with loan guarantees for more than a fourth of the financing needed to restructure Opel. But German officials balked at helping GM, given the improvement in the U.S. automaker's fortunes. The automaker recently returned to profit, earning $865 million in the first quarter, after nearly three years of losses.

What impact GM's decision will have on its upcoming initial public offering wasn't clear. "I don't think it will slow the IPO down," Phillippi said.

"The big question I have is, what timeline are they on? (Chairman and CEO) Ed Whitacre thinks they need one this year, then (Chief Financial Officer) Chris Liddell is quoted saying not necessarily right away."

The U.S. government cannot start cashing in its $43 billion investment in GM until the automaker launches an IPO.

Maryann Keller, head of Maryann Keller & Associates in Stamford, Conn., said GM's decision to fund Opel's restructuring may provide some clarity to investors wondering whether the German automaker would be able to carry out its key role in GM's product development and engineering.

But GM will have to reassure them about Opel's outlook.

"It's not pretty and, frankly, it's going to get uglier because of the end of their equivalent of the 'cash-for-clunkers' program," Keller said. German car sales fell 35 percent in May from year-earlier levels underpinned by state incentives.

"I can probably count on one hand the times Opel has made a decent amount of money. They could never get their act together," Keller said.

But GM would now be free to take the right actions to fix Opel. "That's the silver lining. The company can make decisions without having made commitments to excess labor or capacity in places they shouldn't be," she said. "There is no quid pro quo."

The money for Opel's restructuring will come out of GM's overall liquidity -- cash and borrowings which are in "one large pot," said Reilly. He said he expected Opel to return to profit next year.

Asked whether GM might face criticism at home for tapping U.S. taxpayer funds to restructure an overseas subsidiary, Reilly said some people would probably hold that view.

But he said a viable Opel would ultimately benefit GM. "It's better for Opel that we're part of GM, and it's better for GM that it's got Opel," he said.

A senior Treasury official told The Detroit News that the government didn't object, saying GM runs the company, not the Treasury Department.

Reilly thanked Britain, Spain and German states with Opel plants that were prepared to help finance the carmaker's restructuring. As for the German federal government's rebuff, "clearly we were disappointed," Reilly said. "They've taken their decision for their own reasons," he added, citing Europe's deteriorating economic outlook.

Germany had offered more than $6 billion last year to back a takeover of Opel by a consortium led by Magna International Inc., but the deal collapsed late last year after GM's board decided to keep Opel.

Opel and its British sister brand, Vauxhall, employ around 48,000 people in Europe, roughly half of them in Germany.

From The Detroit News: http://detnews.com/article/20100617/AUTO01/6170371/1148/GM-to-remake-Opel-on-its-own#ixzz0r7ElPuKd

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GM to fund Opel comeback ‘alone’

Forget it: Opel/Vauxhall chief executive Nick Reilly says the German government's decision not to help with funding is disappointing.

General Motors withdraws all applications for government loans in Europe

17 June 2010

By TERRY MARTIN

GENERAL Motors made a stunning reversal of policy on its European operations this week, announcing it had withdrawn all applications for government loan guarantees that were lodged to secure the future of its Opel and Vauxhall brands.

The shock move comes a week after the German government rejected the American auto giant’s request for €1.1 billion ($A1.6b) in loan guarantees, and after Opel/Vauxhall chief executive Nick Reilly told journalists he would work with state governments in Germany to make up part of the shortfall.

Mr Reilly also said last week that Opel would continue to negotiate with the UK, Austria, Spain and Poland for funding that would form part of the overall €3.7 billion ($A5.3b) GM had identified as necessary for its European operations to return to profitability.

The company had planned to break even in 2011, and to return to profit by 2012.

In a statement released this week, General Motors said the validity and reasons for requesting government loan guarantees had not changed, but “the process has proven to be much more complex and longer than anticipated and the results are still not finalised or certain”.

“In these circumstances, and given the need to progress the plan quickly, it has been decided to fund the requirements internally,” the company said.

“GM’s recently improved financial strength has also been a catalyst for making this decision.”

In the statement, Mr Reilly said he appreciated the support indicated by the UK and Spain in particular, but added “we need to move on”.

“The decision of the German government last week was disappointing and means that the conclusion of these guarantees is again likely to be months away,” he said.

“To be clear, our funding needs have not changed and we were led to believe that loan guarantees made available to other European companies under the EU program to help offset the impact of the global economic crisis, would be equally available to Opel/Vauxhall.

“But, after a very long process defined by governments, this has turned out not to be the case.

“We are grateful for the decision and support of our parent company, which will allow us to move forward with confidence in this very competitive industry. We cannot afford to have uncertain funding plans and new time-consuming complex negotiations at this time when we need to keep investing in new products and technologies.

“With these new products and the impact of restructuring, we expect to return to profitability shortly.”

New models in the pipeline include the Chevrolet/Holden Volt-based Ampera plug-in hybrid and an all-new sub-light micro-car that will sit below the Corsa compact hatch in the European product range.

The latter is a model Mr Reilly last week said was continuing according to plan, and would be built in Germany rather than the increasingly important GM Daewoo operations in South Korea.

He said some programs would be delayed as a result of the German government’s decision, but emphasised that key products would not be affected.

Mr Reilly, who in recent years has overseen GM’s operations throughout Asia, including Australia, also warned in the wake of the German rejection that the funding shortfall could threaten other GM operations elsewhere in the world.

“Could GM Company pay for the whole lot? In theory, it’s possible. But then they would have to do something else less in the US or elsewhere,” he said. “You have to remember they (GM) are operating largely because of US taxpayers’ money, so they have to be very careful about what they spend outside the US in particular. They certainly didn’t expect to have to fund the whole lot, and that’s why we should be looking at all different funding options that are open to us.

“They will be one, but certainly not the only one.”

GM’s announcement this week vindicates the funding rejection by the German government, which argued that the car-maker had enough liquidity – about €10 billion, based on a “conservative calculation” – to return Opel back to financial health, even after it had paid back credits from the US and Canadian governments.

As GoAuto reported, Germany’s federal minister of economics and technology Rainer Bruederle said last week that “GM is economically much better off than a year ago”.

“We have to move again in the proper courses of the social market economy, and market competition has to come into play much stronger again,” he said.

“The state economy will be pushed back. The state is not a better entrepreneur.”

link:

http://www.goauto.com.au/mellor/mellor.nsf/story2/1CC720B9EEFC42AFCA2577440082A416

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