GM's high-stakes standoff over Opel

At a media event on Aug. 11, I asked General Motors CEO Fritz Henderson if there was a chance that GM would keep Opel. “Not likely,” he said. “The company needs financing support. If nothing happens, (insolvency) could very well happen.” Those comments are more interesting today in the rearview mirror than they were at the time when a deal to sell a majority stake in Opel to parts maker Magna International appeared to have momentum. Just a couple of weeks ago, Henderson wasn’t really entertaining the idea of keeping Opel.

That changed on Aug. 21, when Henderson’s board took the advice of GM’s own consultants and told him to look at all options, including keeping it or liquidating it. Read the latest here. This is interesting for two reasons. First, GM’s new board—which includes some forceful personalities and heavy hitters like Chairman Ed Whitacre, Texas Pacific Group co-founder David Bonderman and retired Coke CEO Neville Isdell—didn’t like where Henderson was going. He recommended the Magna deal, pending a few changes. But the board wanted to cast a wider net look at all possibilities. This wasn’t necessarily a repudiation of Henderson. The majority of this board hasn’t been atop GM for the past nine months while the drama of the German political scene has played out. But clearly they didn’t think Henderson had turned over every rock looking for a solution. They want him to play hardball and push for more than GM would have gotten by selling a majority stake to Magna, a deal with committed financing from the German government. At a minimum, GM’s board is watching Henderson closely and scrutinizing his decisions. That’s good news for GM and the taxpayers. There is finally an aggressive board that is minding the store.

The other interesting development is that GM would look to either keep Opel or let it fall into liquidation. If GM can’t get a favorable deal with Magna or get the German government to finance another bid from RHJ Investments, then GM would either find other financing options to get money to restructure Opel or just let it slide into insolvency. In Germany, that usually means liquidation. Opel could effectively go away. Then GM would use its Chevy brand in Europe. That is tantamount to a reboot. GM would get small, cheap cars from its Korean operations, reduce costs but also cut its market presence in Europe by a three-fourths. But at least GM would be done with Opel, which has lost billions over the past decade. “Does GM need Opel? Not really,” says Maryann Keller, a longtime industry watcher. She thinks GM could be better off using Asian-made Chevy cars and, if sales grow further, building new plants in lower-cost countries in Eastern Europe.

That will be a big decision for this board. They may decide that selling GM to Magna—which has ties to Russian carmaker GAZ—will just create a new competitor. Or if they’re worried that RHJI could finance Opel’s restructuring and sell it to a rival, then they need to find the money elsewhere to fix it themselves. Credit markets are starting to loosen up, but Keller points out that after the Treasury Department stuck it to GM’s bondholders in bankruptcy this year, few will line up to loan GM more money. So if no one else steps up to finance Opel, GM lets it go insolvent and Germany loses far more than 10,000 of its 25,000 jobs. That’s what Magna or RHJI would have cut. Of course, GM can’t keep Opel in its current state with its intransigent union, high costs and fat losses. “What’s good for GM is not good for the German government,” Keller says.

The Germans want to save jobs and get GM to go away. GM wants to stay in Europe, but without Opel’s bloated workforce and high costs. This will be a nervy standoff between Henderson and his board and the German government. And it will be a defining moment for Henderson’s relationship with his new board.

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