Thursday, 5 November 2009

The right royal mess at GM Europe

Politicians should, in general, not meddle in business. A great illustration of this danger is the mess brewing in General Motors Europe.

Facts of the case are as follows. When GM was entering bankruptcy last year, the fate of GM Europe was in serious doubt. In any case GM Europe had too much of manufacturing capacity in Germany, the UK , Spain and Belgium. Even under normal circumstances a big restructuring was inevitable. Now there was serious threat of complete closure.

In waded the politicians. No less than the redoubtable Angela Merkel, Chancellor of Germany. She was coming up for an election. In Germany, auto workers are next only to God. No way was she allowing job losses amongst auto workers in Germany. So she forced an auction, put together a curious alliance of a Canadian spare parts manufacturer (Magna) and a Russian bank (Sberbank) to buy GM Europe. She then offered them $6.6 bn (yes 6.6 billion) and they had to commit no closures and job losses in Germany. Unsaid, but obvious, was – I don’t care what happens in Britain and Belgium – you can go and shut those. She forced a reluctant GM to agree to this ; at that time GM was weaving drunkenly on the ropes and in no position to even talk back to Merkel.

Now Britain, Belgium & Spain would not take this lying down. But they didn’t have the money to do anything about it. But a case is on in the European Union’s competition commission against the German plan. Merkel is no fool – she knows how to twist the Commission and get what she wants. So there the situation lay.

In waded the US of A. The US government has been overseeing the restructuring of GM. One of their demands has been for GM to produce greener and smaller cars. Now GM was doing a fair bit of development of such cars in Europe. If GM Europe went away, all that would be lost.

GM was also not too keen to sell GM Europe to Magna. They saw them, and especially the Russian connection, as competition and did not want all that technology to go to them for them to compete with GM in Russia where Chevrolet is doing pretty well. And how could they be a global company with no business in Europe ?

GM has got over its hangover now having come out of Chapter 11. It is now not mortally terrified of Merkel. So it said a couple of days back, that it was pulling out of the deal that she had forced on them.

There’s complete chaos. The Germans are absolutely furious (holy cow – plant closures in Germany and those b$%# Americans are backing out). The British are delighted (less job losses in the UK). The Russians are livid (not really sure why). The Americans are smug. GM is bracing for a huge fight. With all the politicians mucking about, what chance does GM Europe have ?

24 comments:

  1. wah! it really a corporate jungle out there, fighting for survival!

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  2. Yikes! What a mess!! Politicians and nearing elections ....sigh!!

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  3. Im sure the Brit unions are going to like this U turn..wonder though, where GM will get money to finance the Opel restructuring plan..
    on a different note, I hope all hell doesnt break loose (if not already) at the German plant..reminds me of the uprising in the French factory set up.. (bosssnapping and the likes)

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  4. kiwibloke5/11/09

    I do not understand why Europe even has car manufacturing plants! Agreed you can't beat a beamer, a merc, an audi/VW and even the lowly Skoda in terms of precision engineering and safety standards. But with the hugely pampered workforce (33Hours a week?, 6 week vacations, pension/healthcare plans and everything else) why should consumers continue to pay for these 'excesses?' Not that the Japanese cars (i've had five so far) and even the Korean cars (I've had three so far) are less in terms of build quality and safety. I guess the best option would be to let these brands die a natural death. But ofcourse that is a non option for politicians -coming to think of it politicians across the world are similar, pretty much like dirty nappies and full of you know what!

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  5. kiwibloke5/11/09

    being the petrolhead that I am, I shudder to think of what would have happened if a russo-canadian car appeared on the road. Reminds me of a car we both used to drive in the early 1990s- was called a premier 118NE the best hotch-potch I've ever driven. It has an old Fiat body work, morphed to look like a Russian Lada, an under powered 1.2L Nissan Engine and some patch work transmission partly indian partly Italian. It ran well though, when ever it was outside the workshop!

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  6. Increasing oil prices!Royal Automobile industry in a mess!!Rings a bell!!

    LOL at Kiwibloke's comment on premier 118NE-//It ran well though, when ever it was outside the workshop!//

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  7. Good for GM, and good for the United States of America. President Obama did the right thing and forced GM into bankruptcy. Then they had the cash for clunkers deal which you railed against. Net result is a GM that is willing to fight its way out. Rather than me pay to keep 10,000 german car workers in the style to which they are accustomed, GM will now manage them into a more competitive work and payscale structure. The last time a Private Equity rescuer appeared on the horizon for MG Rover, it ended in tears for everyone. So looks like the end game is what tax payers want.

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  8. Exkalibur6665/11/09

    Great Post. Public demand: Kiwi bloke should also start writing a blog... 118NE was hilarious and the sarcasm infectious...

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  9. @Sri - Corporate jungle is OK. Political jungle is the problem !

    @thoughtful train _ Sigh; Amen !

    @AJCL - Bossnapping is a peculiarly French pastime. The Germans simply go home ! GM is still asking European govts money ...

    @kiwi - Hee Ho Ho - Pl read Exkalibur's comment

    @athivas - Yeah - the auto industry does seem to have a full plate of problems.

    @Dada - Yes its too much to ask you to keep 10000 German workers on their 6 week vacation. They surely must let Opel cut its bloated German workforce.

    @Exkalibur - Completely agree. Kiwi - are you listening ?

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  10. Durga5/11/09

    Phew! Why can't people go about their own businesses?

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  11. I don't fully get the public or politicans' obsession with the car industry. The financial sector, I can maybe understand. What makes the suto industry so special? Is it because politics is male-dominated and men seem obsessed with their cars - their design, engineering and what not. (I rant only because of all the lunch conversations at work about corvettes and porches and cylinders and stuff that bore me to death) For me the Japanese models are functional and safe and get me from point A to point B - what more can I ask for. Jobs are worth fighting for in every sector, why are car manufacturers more getting preferential treatment all over the world? Are auto workers such a huge voting block? I am sure there are other bigger voting blocks whose interests fall by the wayside.

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  12. What a mess! It took me 2 readings to understand the royal mess. But funnily, couldn't help noticing, the whole plot is so similar to the World War-I story, even the protagonists are same! :P

    Nations didn't grow up in 90 yrs, can you beat that... just that its not in the form of a 'battlefield kind of war'!!

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  13. @Durga - Phew indeed !

    @J - One of the largest employers of blue collared workers, thats maybe why. Well, spare a thought for the number of times I am asked in this forum , what are you wearing ? Men's talk about cars is just the masculine equivalent :)

    @Deepa - Now that's a connection that hadn't occured at all. Interesting.

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  14. Vah!Deepa,now that was an unthought twist!!Kudos on making that connection :)

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  15. To Deepa - It is Lusitania in reverse... :)

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  16. kiwibloke6/11/09

    Thanks Exkalibur and Ramesh for the encouragement to Blog and Athivas for the compliment! I guess this is now added on to my list of things to do post retirement!

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  17. Sandhya Sriram6/11/09

    Ramesh you are absolutely marvellous. your can make mundane events more interesting than sidney sheldon or perry mason. lucky to be one of the viewers.

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  19. @Sandhay - Aww - you are so so kind ...

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  20. what a way to reach 200! way to go!

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  21. @AJCL - Unbelievably kind of you to notice and write these words. I am more than touched. Thanks so much.

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  22. I was always stumbled how German politicians and the Union could have seriously thought GM would let Opel go. Opel together with GM’s China operations is really all they have for the international market (if we leave out Holden which in fact is again Opel). Almost more important Rüsselheim the HQ of Opel is the COE for midsized and fuel efficient cars and the center where the new Ampera – a Hyprid model is currently constructed to be released in 2012. This said the way the ignorant GM top management in Detroit managed their overseas operation is in fact a scandal and therefore in fact it is not really of a big surprise, that for the workers and therefore the public and the politicians anything was better than GM.

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  23. @Hansjoerg - Thanks for your your very valued comment. GM's management indeed had attention only for the troubles of America, ignoring the science in Europe and the success in China. They are to blame as well for "destroying" Gm Europe over the years.

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