GM Europe Still Not Sorted

17th September 09 – GM Europe still not sorted

It seems ages since we wrote about the Canadian/Russian solution to how General Motors would off-load its European business featuring the marques of Opel and Vauxhall. But, having successfully passed through Chapter 11 bankruptcy in it home US territory, GM has not managed to pull the deal off.

Talks between GM (chief negotiator is John Smith) and the German government have stalled notwithstanding the Germans putting up 1.5bn euros as security. From a UK perspective, this leaves the 5,000 Vauxhall workers still in no-man’s land. The spoiling factor has been a rival bid from RHJ International, the Belgium investors. This bid has been finally rejected by the German government since it prefers the original deal with Magna of Canada and its Russian banking investor.

Intertwined with the commercial case for resolving the future ownership aspect of GM Europe is a political one. Germany goes to the polls in late September and obviously the question of jobs is key especially during these hard times for employment. The original deal was likely to save most jobs. On the other hand, the Americans are worried about the risk of technology transfer and future competition from Russian interests. It is no coincidence that the re-born Chrysler business is currently aiming a small car at mainland Europe.

GM would appear to have three alternatives with its European business:-

• Agree a compromise with Magna (the Canadians)

• Refinance Opel and Vauxhall

• Restructure the business through some form of insolvency.

The back rooms are likely to be buzzing at the Frankfurt Motor Show which starts today. If the German government decides to up-front the whole finance for Magna, the US and UK administrations are likely to have a headache whether tea or German beer is consumed in those back rooms.