GM’s Board Goes On Offense

GM has been trying to sell Opel for months and has talked to nearly every company in the world that has any interest in owning an auto firm and can prove it can make a modest down payment. GM was losing so much cash that it put the unit on the market as it headed into Chapter 11. There was no guarantee GM had a future, even as it entered the court room. The US government owned 70% of the car company once the proceedings were over and American tax payers had put up $50 billion for that privilege.

Chancellor Merkel of Germany recently chided the GM board for not moving along the process to sell Opel more quickly. The government of the European country and several of its states have agreed to put up $6.4 billion to back a buyout which looked like it would be led by Canada’s Magna International.

President Obama may get a call from Ms. Merkel. GM appears to have decided it may keep Opel if it can. According to the FT, “The US carmaker and its advisers are studying a scenario in which GM would abandon the German plan and instead raise roughly €3bn ($4.3bn) of rescue funds for Opel and its British Vauxhall brand from the US and other European governments.” Obama is as close as an “owner’s representative” as America’s taxpayers have. Merkel may believe she can make an end run around GM’s board to get the US car company to consummate a transaction that was nearly done.

A few weeks of experience can make a great deal of difference to a new board of directors, it turns out. GM moved out of Chapter 11 on July 10. Most of its current board members are new. 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 give the company a chance to keep its huge European operation and get a substantial return from it as the continent recovers. No one at GM would have had the temerity to suggest keeping Opel as recently as the beginning of this month.

The Germans look like dupes now, although they really are not. They did what most countries in their position would do. The fate of tens of thousands of their citizens rests with the future of Opel. The government gave Opel the equivalent of a bridge loan as it shepherded the firm along until a buyer was found and even offered the necessary financial support to make sure that a transaction could be secured.

GM will probably take advantage of Germany’s kindness, which was not kindness at all, but self-interest. 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.

GM has every right to repay Germany by taking a course that may initially appear not to be in the European company’s best interest. That’s business. Germany made a mistake by not pressing GM harder to get a transaction completed.

Germany may make GM’s change of heart into a very unpleasant incident. It will probably accuse the car company of negotiating in bad faith and using the financial support of Germany to buy time. Those things are true.

Germany and the US should let the matter go, even if it is politically painful. Opel has an owner. It might have been a company other than GM. Now it turns out that Opel may not change hands at all. Without a buyer, Opel could have ended up being dismantled and a large part of its work force fired. The auto industry was that desperate just a few months ago. Now, there is hope that people in Europe and the US will start to buy cars and light trucks again. If GM keeps the firm, the German workforce at Opel will remain employed.  GM will remain in charge.  Sometimes it is best when things change the least.

Douglas A. McIntyre