GM Has Options if Opel Sale Falls Apart

According to General Motors Company CEO, Fritz Henderson, the automaker will continue to be dependent on Opel’s small car and engine expertise long after the division is sold. GM hopes to finalize its sale of Opel to Canadian auto parts supplier Magna International, Incorporated and Sberbank of Russia this week.

Next spring, GM’s Chevy division plans to replace its Cobalt small car with the new Cruze which is based on a platform designed and developed by Opel.

Speaking of the ongoing interdependency between GM’s various division, Henderson said, “Mutual dependency is powerful.”

If the sale to Magna International fails, many industry experts speculate that GM could get along without Opel. Most claim that Opel is not essential to GM’s global operations strategy since the company emerged from bankruptcy this past summer.

In the event the sale does fail, GM could simply shift the platform and engine works operations from their current bases in Europe (primarily in Germany) to the company’s U.S. and South Korean facilities.

Opel engineers located in Germany, Belgium and the U.K. currently manage a single platform, known as Delta for small cars. In addition to the Cruze, the Delta platform is in use in various small vehicles that GM markets in Asia and the U.S.

The Epsilon platform which is used in many of GM’s mid-size autos was relocated from Germany to Detroit earlier this year. The Epsilon platform will be introduced in the U.S. market next year in the form of the 2010 Buick Lacrosse mid-size sedan.

In the past, GM has utilized Opel engineering in its Saturn Vue and Astra models. Last month GM announced that it is abandoning its Saturn line.

In 2008, Opel provided about 1.5 million vehicles which represent approximately 20% of GM’s global sales.

According to Nigel Griffiths, an auto industry economist with IHS Global Insight, GM’s failure to seal the deal with Magna International would result in a 3% to 4% increase in the automaker’s purchasing costs. By shifting production of its European market vehicles to South Korea, however, GM could offset those costs.

Opel is in dire need of an enormous infusion of cash in order to remain viable. German Chancellor Angela Merkel’s administration, along with various local government agencies, has pledged the equivalent of $6.7 billion in financial aid to assist Magna International in its current bid for Opel.

Griffiths said that Opel’s German auto workers are paid the wages and benefits equaling 44 euros or the equivalent of $65.50 per hour. That compares to under $10 per hour paid to auto workers at a GM joint venture that produces Daewoo and Chevrolet models in Poland.

GM sold a total of 145,023 Chevrolet models in Europe during the first nine months of 2009. Although that represents less than 20% of Opel’s European volume, it shows that GM’s Chevy brand has successfully gained a foothold in the growing European auto market.

Assuming the Magna-Sberbank sale goes through, GM could very well enjoy a mutually beneficial arrangement with Opel’s new owner. However, based on recent history, the odds are against it. In recent years, GM has seen a similar arrangement with German automaker, Daimler, fail and the automaker has scaled back on other joint ventures with Fiat, Subaru, Suzuki and Isuzu.

Fortunately for GM, Opel’s North American Delta production won’t begin in earnest until sometime in 2012. That provides plenty of time for GM to establish trust with Magna-Sberbank before having to commit to a final strategy.

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