None of GM's recent cutbacks was as significant to its bottom line and global market share as selling Opel would be. The automaker confirmed last week that it was talking with PSA Group about options for Opel while cautioning that a deal was not certain.
"A sale of GM Europe would represent the next logical step in GM's strategy to be the best rather than the biggest, properly focused on return on capital and return of capital," J.P. Morgan analyst Ryan Brinkman wrote in a note to clients last week.
GM came close before to offloading Opel, an albatross that has hemorrhaged more than $20 billion since last turning a profit in 1999. But months after then-CEO Fritz Henderson struck a deal with Magna International in 2009, GM's board backed out.
This time around, GM's interest in a sale appears to be less about monetizing a profit-sapping asset than a determination that Europe promises, at best, mediocre returns on significant investment. Had the Magna deal gone through, GM planned to remain in Europe with a big expansion of Chevrolet that it later gave up on, so giving up Opel and sister brand Vauxhall today would be a far more significant step, effectively amounting to an exit from the market.
GM cut its losses in Europe by two-thirds in 2016 and had said it could break even there as soon as 2018. But amid costly emissions regulations and fallout from the United Kingdom voting last year to leave the European Union, executives see profitability in the region as becoming only more challenging, a person briefed on the discussions told Automotive News.
"Making sustainable returns is going to be very difficult indeed for Opel," LMC Automotive said in an analysis of the potential sale. "After persisting in these efforts over a significant period of time, the conclusion has clearly been drawn that Europe will not be profitable for GM and the argument for Europe's continued inclusion in the global operation must be from a nonfinancial viewpoint."
Barra, who flew to Germany to win support from GM's unions and government officials, assured employees that selling Opel would be good for GM's future growth plans, shareholder value and the longevity of Opel's German operations, Bloomberg reported. Germany's economy minister told reporters that GM and PSA executives had given indications that a sale would go through.
There are some downsides for GM. Perhaps most notably, the company relies on Opel for a significant amount of product-development activity, and it's unclear how that would be affected.
The division accounted for 12 percent of GM's automotive revenue in 2016, and the loss of more than 1 million annual sales would mean a hit to GM's economies of scale. It also would drop GM from third place globally to fourth, behind the Renault-Nissan-Mitsubishi alliance.
John Murphy, an analyst with Bank of America Merrill Lynch, said a sale would be a "strategic misstep" for GM.
"Profitability in other regions would likely be hindered in our view," Murphy wrote in a report last week. "In addition, we view the European business as critical for GM to maintain its status as a player on the global auto stage, especially as its two larger competitors [VW, Toyota] manufacture/sell 10 million units on an annual basis, across all global regions. As such, we believe the industrial logic for the outright exit of its European business would not make sense in the long run for GM."
Abandoning Europe would be unprecedented for a major automaker. The region has periodically offered a vital counterweight amid downturns in North America -- providing a bright spot for Ford Motor Co. as the U.S. spiraled into recession and a lifeline for Chrysler Group in the form of a Fiat takeover. During earlier times of trouble for GM, Opel was a source of stability and leadership.
Given those successes, GM entertained grand visions of expanding Opel into Asia and other markets that ultimately turned sour. With economic turmoil and intensifying competition in Europe came a torrent of red ink that forced GM into a seemingly endless cycle of plant closings, retrenchments and reorganizations.
Finally, just as GM was on the cusp of a profit, the so-called Brexit vote dashed hopes of a break-even 2016 -- while also giving executives an impetus to simply look for a clean break instead.