As Germany Opens Opel Funding, GM Could Keep The Unit

The German government got in trouble with EU regulators because it only offered $6.7 billion in aid to one of the bidders for GM’s Opel unit. That bidder was Canadian car parts company Magna (NYSE:MGA) which has backing from Russian financial interests.

Germany has decided that the best way to avoid a collision with the EU is to extend the same funding package to any buyer that GM chooses. That presumably means GM itself.

GM has said it would still like to sell Opel, but $6.7 billion may be too good an incentive to pass up should GM keep the business.

There are several reasons for GM to retain its European operations which includes both Vauxhall and Opel. The first is that GM will walk away from most of the benefits of the eventual rebound in vehicles sales on the Continent and in the UK if it sells Opel. The region remains one of the largest car markets in the world along with China and the US. GM may be best off to risk losses at Opel than to give up on a geographic areas which could be essential to its future profits.

GM has spent decades building the Opel brand and that has significant value. Cars that GM designs in the US and China can be sold, with some modifications, in Europe. That would cut GM’s worldwide product development and production costs. GM and other car companies have pursued the dream of a small “global” car that can be sold in all regions of the world. The American company’s focus on fuel-efficient cars and hybrids may allow that dream to come true which would give it a new line of vehicles in Europe, the US, and China.

The last reason for keeping Opel is to flank VW which is anxious to take market share in American from The Big Three and Japanese car companies. VW has begun to get as aggressive in the US as it has been in China. GM can put pressure on VW in its home market and force it to spend resources there.

Opel had nearly left the GM building last week. This week, with the help of the German government, is a different matter.

Douglas A. McIntyre