Five reasons why GM would be better off without Opel

Thu, 11 Oct 2012

Sale Denials Aside, GM's Future Looks Brighter With One Less European Partner

If GM can find a way to kick its German unit to the curb, it will do so in a heartbeat.

Even though the recent rumors of Opel being sold by General Motors to Fiat were roundly denied, there is still a lot of merit in the idea of an Opel-less GM. And you can be sure that if the company can find a way to kick its German unit to the curb, it will do so in a heartbeat. Here's five reasons why GM should be looking for a way out:

First: Opel is a money loser. The European economy is not only in shambles, but is one of the most competitive car markets on the planet. There is excess capacity, heavy discounting and no one wants to be the first to blink by shutting down factories thereby losing market share and more importantly increasing unemployment in their home country. In this environment, Opel is sure to remain a money loser for the foreseeable future and will soak up profits generated by GM North America just to stay afloat.

Matt DeLorenzo is the former editor-in-chief of Road & Track and has covered the auto industry for 35 years, including stints at Automotive News and AutoWeek. He has authored books including VW's New Beetle, Chrysler's Modern Concept Cars, and Corvette Dynasty.

GM's hands are full battling its "Government Motors" image in the US.

Second: GM can't afford to get involved in German politics. The company has its hands full battling its "Government Motors" image in the U.S. and can't risk being involved in internal German politics if it moves to close factories there to stop the financial bleeding. Also, the fact that the U.S. government has seats on the GM board is also likely to figure in any decision regarding its German unit because of the impact any layoffs there will have on international relations between America and one of its largest European allies. If GM can unload Opel in a way that is politically acceptable to the German government, it rids itself of some messy decision-making that has to come soon.

Third: Unloading Opel will boost GM's stock price. If GM is able to find a new owner for Opel, it will strengthen its bottom line by getting rid of a source of negative cash flow and debt from its books. The other benefit of a higher stock price is that it would make it more attractive for the U.S. Treasury to sell its stake in GM (something that management desperately wants) and allow it to get the "Government Motors" monkey off its back once and for all.

Fourth: By selling Opel, GM will clarify its joint venture relationship with France's PSA. While there may be some platform synergies among GM, Opel and the PSA group (which includes Peugeot and Citroen), this relationship does little to reduce the capacity of the various partners, which is a critical step towards profitability for all. With Opel out of the picture, the capacity question becomes less of an issue between GM and PSA. It will also allow GM to move forward with just one European partner instead of two, making life much simpler.

With Opel out of the picture, GM can strengthen the image of Chevrolet and Cadillac as global forces.

Fifth: With no Opel in the picture, GM has the opportunity to strengthen the image of both Chevrolet and Cadillac as global forces. GM has been working hard to build sales of both Chevy and Cadillac in Europe, establishing both as true global brands. Cadillac is clearly in the luxury segment and has little product overlap with Opel. Chevy, on the other hand, competes directly with Opel on the Continent and with the Vauxhall sub-brand in the UK with its Cruze. The fact that GM spent $600 million in a marketing tie-up with the Manchester United soccer team underscores the magnitude of the company's commitment to making Chevy a major player across the pond. Getting rid of Opel opens up the playing field to a broader range of Chevrolet's products in Europe and also allows for a product strategy that better leverages the PSA joint venture to market the fruits of that relationship under the Chevy banner.

So, while GM continues to profess its confidence in Opel as an integral part of the company's future in Europe, it will become increasingly difficult to stay the current course unless there is some major and painful restructuring. A smaller, more focused Opel may survive, but if it's not deemed politically acceptable to close factories in Germany or new ways are found to reduce costs or the cut-throat competition in Europe continues unabated, GM will most likely continue to look for some sort of exit strategy.

By Matt DeLorenzo