Aug 26, 2009
General Motors Co. appears determined to sabotage its survival prospects by clinging to a global empire when it should be focusing on a comeback in its core North American market.
Overruling GM's CEO and top management, GM's board last Friday rejected yet another revised bid for its principal European business, German-based Adam Opel GmbH. The bidder, a consortium led by Canadian auto-parts maker Magna International Inc., has strong local backing to buy Opel. Its bid is heavily favoured by Berlin, by the four German states in which Opel has plants and by Opel's unions.
As a condition of the company's bailout earlier this year by Washington, Ottawa and Queen's Park, GM was required to shed its Saturn, Saab and Hummer brands and kill its Pontiac division. With its share of the lucrative North American market having shrunk to about 19 per cent, from some 50 per cent in 1980, the unspoken assumption was that the "new GM" would focus on that market. And on its key brand, Chevrolet, which accounts for more than 90 per cent of GM's North American revenues.
Instead, GM appears determined to hang on to its imperial past. The company is haggling with the purported buyer it has found for Saab over technology and patents that GM refuses to give up. The beleaguered Detroit automaker still owns far-flung operations in Australia and South Korea; it has joint ventures to sell Buicks in China and Chevrolets in Russia.
GM has drawn out the sale of Opel for months, loath to surrender its significant presence in Europe, though yesterday its chief negotiator insisted GM still wants to sell the subsidiary. Talks with the German government on the sale continue this week.
Meanwhile, in North America, the world's largest and most profitable auto market, GM has been losing still more market share to a revitalized Ford Motor Co. that has shed all but its Volvo unit (which is on the auction block) to focus on the Ford brand. GM also will soon come under attack in its weak spot of small cars by the new Fiat-Chrysler alliance and a looming invasion of ultra-cheap Indian and Chinese subcompacts.
Yet instead of reversing Chevrolet's gradual decline, the board of the "new GM" seems eager to maintain a crippling tradition in stretching limited resources over too many brands and markets.
Opel is the most prominent example. GM fears Magna will use Opel's technology to emerge as a strong competitor to it, most likely in Russia. Russia is expected to eclipse Germany as Europe's largest market post-recession. So GM has been playing footsie with Magna and a Belgian-based bidder, RHJ International, to see which of the two will let it hang on to Opel's technology and patents. As with Saab, GM is trying to negotiate a non-sale sale, if you get the picture.
Never mind that Magna's proposal lets GM retain 35 per cent of Opel, giving it the luxury of letting Magna and its Russian partners do the heavy lifting of fixing Opel.
Opel has been a money-loser since long before the global recession, due to heightened competition from Europe and Asia.
Yet if it can't make a deal to its liking with either of Opel's bidders, GM is working up a plan to raise $4 billion (U.S.) to keep and refinance Opel itself. But with plants in five countries, and strike-prone unions, Opel is a handful when GM should be focused like a laser on North America. Opel's pro-Magna unions already are threatening to rescind the $100 million or so in vacation pay they offered to give up as part of an Opel rescue.
Budging the North American market-share needle just one percentage point at Chevrolet would gain more profit for GM than the earnings generated by all its global operations put together. And the $58 billion (U.S.) that the U.S., Canada and Ontario invested in GM is intended to protect jobs in North America, not among GM's distracting offshore operations.
At this admittedly early stage, GM isn't following a comeback script. It's still wearing a suit three sizes too big. And it's suffering a debilitating split between its board and top management.
Despite Washington's 60 per cent stake in GM, U.S. President Barack Obama is determined not to be seen micromanaging the firm.
Ottawa and Queen's Park don't suffer the same "optics" problem. For the sake of southern Ontario workers at GM and its suppliers, Stephen Harper and Dalton McGuinty need to have a talk with Obama about automaker's urgent need for a genuine turnaround strategy.