Will GM Follow Through With Opel Divestiture?

What Will GM Do With Opel?

The news coming out of Detroit from GM headquarters has been rather confusing of late. Besides its impending bankruptcy and likely divestiture of Saturn, Hummer and Saab, we now know that GM is looking to sell off Opel too. Or at least a large stake in its German division.

This information is curious as GM has controlled Opel since 1929, holding onto the operation through the worst depression and war of the past century. We only learned late last week that GM was considering not only selling a stake in Opel, but perhaps ceding majority ownership in this vital division. Opel represents the automaker’s most important face across the European continent (coupled with its British Vauxhall brand) as it sells more GM cars than Chevrolet and Cadillac combined.

Possible Sale Of One Or More Plants

General Motors hasn’t given any indication that buyers are interested in Opel. The automaker is negotiating to sell one or more of the brand’s assembly plants while talking with several European governments about taking a stake in Opel.

Likely, this would mean that any country who has an Opel manufacturing plant would be asked to contribute funds to prop up Opel, receiving a share in the newly separated entity in exchange.

Opel May Run Out Of Cash In April

GM is making it known that without some sort of government intervention, Opel will run out of money sometime in early April. 25,000 Opel jobs are at stake with perhaps eight to ten times that number whose livelihood depends on the brand. Should Opel fold, Germany and several other countries would have a crisis on their hands, one that could reverberate through the entire European car industry.

Perhaps what will ultimately define Opel’s future is how GM will handle its impending bankruptcy in the United States. If the automaker opts for a structured bankruptcy, then they’ll quickly divest itself of excess capacity, brands, and people in a bid to fix itself. At the same time, GM will likely make a case for other governments to get involved, particularly where the company has a significant manufacturing presence.

As of right now, no one can say what GM plans to do with Opel (and Vauxhall) as their future depends on what steps GM will take over the next few days. If the US federal government decides to give the automaker billions more money, then the crisis will be delayed by weeks, but not averted entirely.

German Auto Subsidy Program Sparks Sales

This aged Romanian made Dacia 1310 is a prime example of the type of car Germany would like to see scrapped. In a bid to stimulate sales improve air quality, Germany is offering eligible new car buyers a US$3200 equivalent subsidy. Since the program was launched on January 17th, car dealerships have been flooded with customers. Based on this good news, might the Obama administration offer the same in the US?

As Congress passes one stimulus or bail out package after another, Americans are going to want to know which programs will actually stick. Some steps will simply expand government’s role in our lives, with not much in place to stimulate the economy directly, at least initially.

First time home buyers will be receiving assistance in the form of an $8000 tax credit if they buy a home this year, a move which could reverse the slumping housing industry. As far as stimulating new car sales, The American Recovery and Reinvestment Act of 2009 will allow car buyers to deduct local and state sales taxes, but that may not be enough to get buyers in dealer showrooms.

Germany’s Program Is Worth A Look

What our elected officials may want to do is take a look at Germany where Chancellor Angela Merkel’s government introduced a program that encourages the scrapping of old cars in favor of purchasing new, more environmentally friendly small cars. Under that program, which began on January 17th, Germany is offering a US$3200 subsidy for people who scrap an old car for a new one.

Since the program began, buyers have been flooding car showrooms which has had helped boost sales while removing older, more polluting cars from the roads. Ford, Dacia, Volkswagen, Opel and Fiat have all benefited from the program with some dealers running out of models.

For the Luxury Brands, Not Much Impact

Higher end automotive dealers such as Audi, BMW and Mercedes aren’t seeing much benefit from the program, likely for the reason that the cars being traded in wouldn’t qualify under the program. In addition, few dealers expect owners of a ten year old VW Polo to trade up to a luxury model in order to take advantage of the program.

But there is one down side to the German program: only the first 600,000 people who take advantage of the offer will get the government subsidiary. With as many as 1.2 million eligible car owners saying that they will definitely use the scrap bonus, the Merkel government may want to expand the program or offer it again in the near future.

Source: The Wall Street Journal