'New' GM takes U-turn on Opel

27th August 2009, Comments 0 comments

An unconfirmed newspaper report hit like a bombshell: GM is trying to assemble 4.3 billion dollars to keep its ailing subsidiary Opel.

New York -- The newly svelte US auto giant General Motors that emerged from a bankruptcy reorganization appears sufficiently confident to be willing to keep German unit Opel and a presence in the Europe market.

A Wall Street Journal article late Monday was not confirmed by GM but nevertheless hit like a bombshell: GM is trying to assemble 4.3 billion dollars (3.0 billion euros) to keep its ailing subsidiary Opel.

The plan, if confirmed, would represent a strategic U-turn for GM, which has been seeking for months to get rid of Opel, the carmaker that bled two billion euros (2.86 billion dollars) in the first quarter of 2009.

"No one would have believed that the GM board would become so confident overnight, or that it would potentially make a decision that could drive a wedge between the American and German governments," said Douglas McIntyre, an analyst at 24/7WallSt.com.

In recent weeks the "new" GM, in which the US government owns more than a 60 percent stake, has been in close touch with German Chancellor Angela Merkel's government to try to reach an agreement on one of two rival bidders: Canadian auto parts maker Magna, backed by Russian state-owned bank Sberbank, and Brussels-based investment firm RHJ International.

But GM, which emerged from bankruptcy on July 10, appears to see a chance at remaining a major player in the global auto industry that it does not want to squander, according to a number of observers.

Faced with this dilemma, GM negotiator John Smith held talks Tuesday in Berlin with German government officials.

A source close to the Merkel government, which openly supports the Magna bid, told AFP that "GM's management made clear today that they are still interested in finding an investor" for a takeover of Opel.

Nevertheless, Diane Swonk, an auto industry analyst at Mesirow Financial, underscored the seriousness of the scenario of GM keeping Opel.

"It's a very important move. It's intended to keep GM as an international player. And it needs the European market," Swonk said.

GM generated 72 percent of its sales in the first six months of the year abroad. Of a total of 1.94 million vehicles in international sales, GM sold 472,000 in Europe, its second-biggest foreign market after Asia, where 534,000 vehicles were sold.

"Since it exited bankruptcy, GM is no longer the weak company to be dismantled as it was perceived before," Swonk said.

Once the world's biggest auto company, GM has scaled back production capacity by a third, been relieved of most of its debt and was injected with public financing. The government-controlled automaker also has a new board of directors.

The hugely popular "Cash-for-Clunkers" federal rebate program to boost auto sales, launched in July and ended Monday, resulted in GM raising its production targets for the rest of the year.

"A few weeks of experience can make a great deal of difference to a new board of directors," said 24/7WallSt.com's McIntyre.

"It has not taken them very long to see that an improvement in the US car market and GM’s strength in China and Latin America gives the company a chance to keep its huge European operation and get a substantial return from it as the continent recovers" from recession, he said.

Still, GM must first find the necessary financing to keep Opel, and the likelihood it could get fresh taxpayer dollars is remote.

Some observers are optimistic that GM will be able to raise 4.3 billion dollars on the credit markets, still tight almost a year after the global financial meltdown plunged the world economy into a recession.

However, Gregory Volochine, a financial markets analyst at Meeschaert New York, sounded a note of caution, recalling that credit "is confined to companies with a solid profile," whereas GM accumulated 90 billion dollars in net losses since 2005.


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