Six months after the “old” GM put Opel up for sale -- and three months after it agreed tentatively to sell the company to Magna International Inc. -- the “new” GM is rethinking the matter.
The German government wants GM to sell a controlling stake to Magna. It has offered to provide billions of euros in aid if GM approves Magna’s bid, passing over a rival offer from Belgian-based RHJ International SA. But since GM declined recently to pick a winning bidder for Opel the Magna deal has been thrown into doubt.
“Keeping Opel makes the most sense,” said a person involved in the rescue talks. “Next best would be RHJ International followed by Magna. Nevertheless, if we follow the political wishes, the order could be exactly the opposite.”
The fortified GM that emerged from bankruptcy last month has several reasons for holding on to Opel.
1. A truly global company needs direct control of its operations in Europe, one of the world's three largest auto markets along with the United States and China.
2. Opel’s technical center in Ruesselsheim, Germany, is the engineering axis for the Delta compact platform -- the basis for such upcoming cars as the Chevrolet Cruze and Orlando -- and the Epsilon mid-sized platform, underpinning for the new Buick Lacrosse and others.
3. The worst is over for Opel. The new Insignia mid-sized car is success. The compact Astra, which debuts at the Frankfurt auto show next month, looks great and promises a lot of technology at an affordable price.
4. The company’s European dealer and distribution strategy needs complementary positioning of the Chevrolet and Opel brands. It doesn’t want to turn them into direct competitors.
5. GM wants to keep control of Opel in Russia, a market with a huge long-term potential.
6. Intellectual property for all GM vehicles produced worldwide would remain under the company’s strict jurisdiction.
7. Opel would have more freedom to decide how and where to make cost cuts. If another group gets Opel -- with support from German loan guarantees -- the restructuring options will be limited by union and political pressure.
Billions in state aid sought
Neither Magna nor RHJ are prepared to save Opel with its own money. Each company's plans call for a limited capital infusion and billions in German taxpayer money. Each would repay the public loans with Opel-generated cash. So why couldn’t GM do the same: relaunch Opel with borrowed money and pay it back with Opel cash flow?
RHJ, a private equity firm with American roots, has offered 275 million euros ($393.4 million) for a 50.1 percent stake in Opel, with GM retaining 39.9 percent and 10 percent put aside for employees. RHJ is seeking about 3.8 billion euros ($5.4 billion) in state aid.
Magna and Russian partner Sberbank have been forced to increase the amount they have pledged for a 55 percent stake into Opel -- from 100 million euros ($143 million) to 300 million euros ($429 million). But they would still need 4.5 billion euros ($6.4 billion) in loan guarantees.
To keep Opel, GM has to come up with some serious money: more than $6 billion. To regain control of the 65 percent of Opel put in a trust on June 1, GM has to repay 1.5 billion euros ($2.1 billion) given by the German government to keep the company alive.
Then it needs at least a 3 billion euro ($4.3 billion) cash cushion to complete the company’s turnaround.
Germany, which is trying to push GM into accepting the deal with Magna, probably won’t want to offer big loan guarantees to GM. But after Germany’s national elections on Sept. 27, the new government could have a different attitude.
There are five Opel plants in the country and two of them are at risk of closing. Some sort of compromise is probably foreseeable.
Following Ford's footsteps
Other financial help for GM could come from Belgium, the United Kingdom, Poland and Spain, countries where Opel has plants that would be threatened by a German-driven restructuring of Opel.
GM is not allowed to spend U.S. government bailout cash on overseas operations. So the rest of the funds needed to retain Opel could come from mortgages backed by some of its plants and trademarks -- in Europe and elsewhere.
That is what Ford Motor Co. CEO Alan Mulally did almost three years ago. The cash cushion allowed Ford to keep its independence during the credit crunch. For GM, it would not be easy to put together the money needed to regain control of Opel and relaunch the company. But it would be worth it.