International Government Motors

Do you really think that the decision by General Motors to try and renege on the deal for the sale of Adam Opel GmbH to Magna International Inc. was untainted by politics? People aren’t calling it Government Motors for nothing. The structure of the German Trust holding 65 percent of Opel allows for an impasse between GM and German government representatives. There is no tie-breaking provision. The only way out is political.

One analysis I heard offered speculation that the United States government may not “allow” GM to use its improved cash position to invest in European operations. Remember that the Opel division is a money loser. The GM board members apparently now think that after a few months of operating a domestic turnaround they’re ready to take on the world. This is politics, not a business decision.

Politics is already on the table in Europe of course. Germany’s government will want repayment of its $2.2 billion bridge financing, which was used to sustain operations while GM dithered over the sale of Opel in the first place. How likely is it that the $6.7 billion in German government guarantees offered to support the Magna deal will be transferred to GM? The political cost to Chancellor Merkel is too high.

Then there is the Sberbank participation that included economic benefits for Russia’s faltering economy. Vladimir Putin has not said much yet but this GM action could lead to legal claims in addition to European labour unrest. If GM is serious about keeping Opel, there will have to be major restructuring that may negatively impact on European labour.

Frank Stronach of Magna has shrugged off the loss already. He’ll carry on looking for another opportunity to build cars. Those Canadians are so darn nice and understanding.

©Copyright 2009 Edward Podritske

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