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GM & Opel

posted by Stephen Lubben

On the day GM filed, the Times ran a story noting that GM's European division – Opel/Vauxhall – had been “spared” going into bankruptcy by the deal with Magna and some Russian investors.

Are we so certain they were spared?  Sure in the short term European employees and others who rely on GM will avoid some pain, but what about the long term?  The domestic part of GM is talking about dropping over 2,000 dealers, rewriting its labor contracts, massively reducing its debt load and shuttering several plants, all in about a month.  Will Opel’s new owners be able to achieve a similar degree of restructuring in anything close to that timeframe?  It may be my American chauvinism, but my impression is that it will be even harder to obtain a comprehensive restructuring of Opel outside of a bankruptcy process, as the European jurisdictions have much stricter laws regarding the termination of employees, shuttering plants, etc.

As GM and its stakeholders are now learning, sometimes avoiding bankruptcy simply makes the pain worse when it comes.  GM's chapter 11 case would have been much simpler (relatively) two years ago, when the credit markets were open and people where still buying cars.

(I invite the European readers to comment or correct me in the comments or via email.)

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Comments

It's going to be ugly. Laws are stricter, unions have much more clout, political pressure will be intense.

GM's chapter 11 case would have been much simpler (relatively) two years ago, when the credit markets were open and people where still buying cars.

That's the real point, isn't it? Pain delayed seems to almost always be pain multiplied.

As for the European bankruptcy, if and when it arrives, the real drama will be sourcing jurisdiction under Europe's 'center of main interests' rule. Typically, this has resulted in companies finding their center of main interests to be in the UK. Vauxhall may make this argument feasible for GM Europe - I wouldn't be surprised if in the interim the new management was based in Luton!

IIRC that would then leave the Germans, Belgians and French courts to locally adjudicate 'their' bankruptcies, but with very limited recourse to any out-of-jurisdiction assets and fundamentally subordinate to the British proceedings (ie, if the British entity decided to sell the Belgian plant for scrap, then the Belgian court could ensure that a certain amount of the proceeds went to the Belgian workers, but could not prevent the sale or ensure worker consultation even though this is probably mandatory under Belgian law).

I would love someone more informed to correct that account.

The situation is quite unclear. As a matter of fact the German government prefers the alternative of Opel/Vauxhall taken over by Magna (a big supplier of GM) with 20% of the stake, by the Sberbank (a big bank in Russia and also a big lender to GAZ, which is a big automotive company in Russia and it seems to be that the former hopes to transfer knowledge to its debtor; 35% of the stakes). 35% still belongs to GM and 10% shall be taken over by the employees and the dealers.
The federal government has already guaranteed a loan of 1.5 bill. € and is willing to guarantee further 3 bill. €.
BUT, Magna was not willing to pay a bill of 300 Mio. and so had the government to pay it as well and does not trust it anymore, so the other interested parties (Fiat and and Riplewood) are back in the game.
The plan itself is neither sustainable since Opel/Vauxhall has to pay fees for the patents to GM and the memorandum of understatement rules out competition: Opel is not allowed to enter the American market and even the Chinese market is prohibited.
It looks more like that this is a transfer of risk to the various European governments and after the cleaning-up of GM (hope, it can be done)the European part will be reintegrated into GM. It has, by the way, the advantage, that the European employees will be splitted since they have shown a great solidarity in the company when it first got down under in 2005 (2004?). This is ruled out by the new conditions. And Bochum will be a real depressed area, just as Detroit.
I don't like it since Wagoner and Foster will be clever-cunning retire without any discomforts after they ruined thousands of existences.

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