Tuesday, August 25, 2009

What's GM's Angle?

bit in the New York Times today about General Motor's apparent reluctance to sell its German/European Opel Division to Magna Corporation in Canada.

While I agree that part of the Magna deal, where "G.M. might have to subsidize interest payments on Opel’s debts" is unacceptable, it seems that GM might be much more interested in either (a) keeping Opel or (b) selling it to a company that will screw it up worse. Actually, the article all but says as much.

I think GM is very worried that a well-run Opel could really hurt GM, not just worldwide, but particularly in North America (Canada and the US).

Magna is a very well-run international company that already participates extensively in the automotive market, providing products and services to automotive OEMs (Original Equipment Manufacturers). The most interesting business of Magna - to me - and perhaps the most frightening part to GM is Manga's Complete Engineering & Assembly capability. For example, Magna currently produces all of the Chrysler 300M, Jeep Commander, and Jeep Grand Cherokee models to all non-NAFTA (North American Free Trade Agreement) countries - including the right-hand driver versions sold internationally. So Magna could probably run Opel fairly well, it would also create a new entrant into the OEM category (same brand, but controlled by a different owner), therefore increasing competition internationally. Given some Opel cars have already been modified slightly for North American markets - Magna could conceivably consider moving into the North American markets and create yet another competitor for GM's (historically) most profitable market.

Although GM is making motions to sell Opel to the Germany, I'm guessing they believe that Germany will screw up the company worse. Perhaps part of that belief is grounded in the fact that Germany's unions are pushing hard for Germany to acquire Opel. But German unions are not the same as US unions and it's not clear that Germany will hold the company for very long before letting a group of investors take over primary management responsibilities along with the unions. That mirrors the relationship Germany has with most of the German-based automotive companies - except for Opel, since it is owned by GM.

At the end of the day, though, it looks like GM's primary goal is to keep Opel, if for no other reason than to make sure no one else gets it and competes with GM. This is a classic anti-competitive move, the only difference is that instead of buying Opel and shutting it down, GM can keep it and let it die a long, slow death - all the courtesy of the US Taxpayer that's now the majority shareholder of the company.

Yes, I agree that selling the company with "strings attached" to pay for future unseen financial changes is unacceptable. However, GM needs to sell Opel and focus on the core of GM's brands that it's keeping. Consumers around the world would be better off with a well-run Opel, German unions would be better off (and more secure) with a well-run Opel, and GM's majority stockholder - the American Taxpayer - would be better off selling Opel to a company that can run and realize more value from Opel going forward.

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