New car news

04 November 2009 - 10:00

GM calls off Vauxhall sale

General Motors has dramatically reversed its decision to sell its European arm, Vauxhall-Opel. It had agreed to sell a majority stake to a consortium led by the parts maker Magna, a bid that was supported by a large share of money from Russia's state bank.

GM says the eleventh-hour decision to keep Vauxhall-Opel has been made because it can now see its way to being profitable in the US. This is possible because earlier this year it went through bankruptcy in the States, slimmed itself down and shook off debt. It also says the car business is turning the corner in Europe.

It certainly makes sense for GM to keep its European arm. The engineers there had developed both the Insignia and Astra, cars that were being planned for use all over the world under various GM brands, including of course, Holden.

If the engineering of those cars had leached away to Russian hands, GM's competitiveness would have been compromised. For instance, GM would have wanted to continue selling its Korean Chevy Cruze in Europe and Russia (a big market these days). But if a cheap version of the Astra were to be built in Russia by Magna, the Cruze would have lost out. And GM would have shot itself in the foot.

So GM never really wanted to sell the European arm. It was forced to put it up for sale when it went bankrupt and got support from the US Government. Taxpayers there wouldn't have wanted their dollars going to prop up workers offshore.

Now GM is out of bankruptcy, rather more quickly than many people thought it would be, and it has more control over its strategy again. Its bosses are talking of beginning to float 'new GM' shares on Wall Street next year, and use the money to begin repaying the roughly $50 billion (AU$55 billion) of US taxpayer loans.

But today's news certainly doesn't mean business as usual for Vauxhall and Opel. For years they have lost fortunes in bad times and made only slim profits in good times. That's got to change. GM needs to have a solidly profitable European arm. So difficult days await the 55,000 workers in Britain and the rest of Europe, because factories will have to be shut to make sure that Opel and Vauxhall have a cost base that's realistic for the number of cars they can sell.

And more political battles will affect the result. The German Government wanted to protect German factories and jobs. Magna was the bidder that promised to do that, at the likely sacrifice of jobs in Britain and Spain. In return it was promised financial help by German Chancellor Merkel's government.

That support is now in jeopardy. Vauxhall-Opel will likely enter a time of horse-trading again, to see whether the German, British or Spanish governments will give aid. In return those countries will be seeking promises over jobs on their soil. Promises that might rob GM of the competitiveness it has lacked for so long.

Needless to say, turmoil overseas will affect us directly. Only time will tell what the future holds for the Australian market.

Paul Horrell