GM's Tarnished Gem

General Motors is burning cash so fast that it is likely to go bankrupt before the inauguration of Barack Obama as US president in January, but its Opel division in Germany, known as Vauxhall in the UK, is still liquid. Opel's mid-size Insignia was even voted as 2009 European car of the year by the trade press.

GM and Opel have been bound together ever since Adam Opel’s heirs sold what was then Germany’s biggest carmaker for the princely sum of $33 million (26 million euros) during the Great Depression of the 1930s.

However, the German press is now talking about divorce before Detroit brings them both down.

"Opel is not for sale"

Last week, a GM spokesman in the US told AFP news agency told that “Opel is not for sale.”

But, GM's Zurich-based European works council head Klaus Franz told reporters “GM won’t let us go,” explaining that Opel’s R & D center in Ruesselsheim, which develops an entire range of GM models, is too valuable for the parent company.

Franz had even gone on to say that GM owed Opel over one billion euros in cash, the same amount Opel seeks from a German government bailout. Should GM fail, Berlin has been asked to guarantee loans of up to one billion euros for 2009.

Back in Ruesselsheim, Opel head Hans Demant denied Franz’s statement to the Frankfurter Rundschau newspaper.

Divorce recommended

The flip-flop is only one sign of contradictions and turmoil at GM’s European operations, according to Christoph Stuermer, an auto analyst at Global Insight GmbH in Frankfurt, adding that he would recommend a divorce from GM for Opel’s sake.

“The problem is that Opel still makes money for GM,” said Stuermer, who believes that GM could be prepared to let go of one of its more prized assets if the price was right.

Last week, Germany’s flamboyant sun king Frank Asbeck of the green energy firm SolarWorld had offered GM one billion euros in cash and guaranteed credit lines to take over Opel's four production plants in Germany that was promptly turned down by GM.

Solar king's offer for Opel

Although Stuermer characterized Asbeck’s extremely low sum as “a slap in the face” and other auto experts dismiss the offer as a “publicity stunt,” the move triggered speculation about Opel’s future and how inextricably the 100 percent owned subsidiary is bound to its parent company.

“GM and Opel have been together for nearly 80 years. They are woven so tightly together that it would be extremely difficult to separate them,” said Juergen Pieper, a transport analyst at the private banking firm Bankhaus Metzler in Frankfurt.

Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) in Gelsenkirchen dismissed the longstanding relationship between GM and Opel.

"What Man has put together can always be torn asunder,” he said, pointing out that Ford had recently divested itself of the long-held, but financially troubled, luxury brand Aston Martin bought by a consortium of Kuwaiti investors, a Texas banker and British rally driver.

Rocky marriage between GM and Opel

Besides the marriage between GM and Opel has been a rocky one to say the least in the last decades, according to Wolfgang Meinig of the Center for Automotive Research (FAW) in Bamberg.

“It would be sensible for GM to let Opel go before it might be forced to file for Chapter 11 bankruptcy,” said Meinig, who added he could also see Opel being bought out by equity investors.

Shortly after Asbeck publicised his offer last Wednesday, 1,000 Opel dealers banded together to propose a buyout. The problem is that those franchises are struggling financially themselves, according to Stuermer.

“But it is a good sign that dealers out there are willing to stand up for Opel, that there is still life left in the brand,” said Stuermer, who had also slammed Opel’s downscale image. “In an image-driven market, many Germany don’t want to be associated with some of Opel’s uninspired brands -- Astra, Omega, Corsa,” he said.

GM blamed for Opel's problems

“Image problems don’t fall from the sky,” said Pieper, who explained that other German manufacturers simply produced better quality cars in the last decade or so. Opel’s market share in Western Europe has tumbled in the last 15 years from 13.2 percent in 1993 to an estimated 8.6 percent for 2008. During the same period, Opel’s chief rival in the mass market, Volkswagen, climbed from 16.3 percent to what is expected to be above 20 percent for this year, said Pieper.

The analysts all pin at least part of Opel’s problems on General Motors. “In the last decades, GM has been so grossly mismanaged,” said Pieper, who believes it serves GM right if the US Congress allows America’s biggest automaker to file for Chapter 11 bankruptcy, which might not be the end of the world. “Who knows? GM could emerge healthier from it,” he said.

But even if GM was to fail and took Opel down with it, Pieper thinks that the demise would not be tragic for the saturated European car industry. “Opel is just another brand. It’s up to the market to regulate which brands survive,” he said.

Opel is "worth saving"

But Stuermer says that Opel is worth saving. “They’re making money, so they don’t deserve to go under. They ought to have a chance at survival (without GM),” he said.

Dudenhoeffer believes that potential buyers could even be waiting for Opel to come on the auction block if GM enters Chapter 11, which even could be one of the conditions of a federal bailout.

"Then Opel could be a real bargain for, say, the Chinese, who wouldn't mind the technology that comes with it and a foothold in the European car market," he said, adding that US congressional approval to bail out GM is not guaranteed.

"The US didn't save Chrysler in the end either. Why should GM be a sacred cow? What's more important: Detroit or America? They are not necessarily the same," asked Dudenhoeffer, disputing the GM motto "What's good for GM is good for America."