GM triples investment in Opel/Vauxhall overnight

GM is to boost its European restructuring budget to 3.3bn Euros after pressure from Germany.

Last Updated: 06 Nov 2012

The move is a particularly abrupt volte face for the boss of GM Europe, Nick Reilly, who only yesterday said the firm was not looking to put more cash into revamping its Opel and Vauxhall operations.  But this morning Reilly has confirmed that the company requires a total of €3.3bn for the task, of which GM itself will contribute €1.9bn – three times its initial investment estimate.

That’s a big jump by any standards. So what’s going on? In a word, politics. GM has been bargaining with the German authorities over the level of state aid it can expect, and it looks like the Germans have won. The total government support required for the restructuring will now fall by around €700m to around €2bn – most of which will come from Germany, although other governments including the UK’s will also contribute.

It’s a particularly sweet victory for the authorities in Berlin, as relations between GM and the German government have been frosty ever since the US car maker performed a last minute handbrake-turn over plans to sell GM Europe to Magna. Carefully stage-managed to safeguard the 50,000 Opel jobs there, it had chancellor Angela Merkel’s fingerprints all over it; and we all know how much politicians hate to be made to look foolish.

It’s not all about revenge however. The fact that GM is prepared to stump up this extra cash, especially given the state of its finances currently, is a clear signal of the strategic importance it places on Opel and Vauxhall for its next generation product range.

The US giant, best known for producing huge gas-guzzlers like the recently defunct Hummer, seems to have had a Damascene conversion and now believes that small, energy efficient cars are the future.  An eminently sensible decision, although it’s a shame things had to get so bad for bosses to realise it (GM emerged from Chapter 11 bankruptcy protection last year).  Small cars, hybrids and electrics certainly dominated the recent Geneva motor show. And Opel is the only part of GM that knows anything abut making small cars…

The announcement may also be partly due to the fact that GM bosses back in America want to clear the decks for what may turn into an ugly row over a mechanical glitch. 1.3m cars are being recalled to have a fault in the power steering fixed after it was linked to 14 accidents. The faulty part was made by – oh dear – a Toyota subsidiary, and GM seems unwilling to shoulder the blame for what it considers someone else’s failing. Considering all the grief Toyota is getting at present, what’s one more apology to add to the list?

Despite the strategic logic of the decision to boost support Opel and Vauxhall, it’s likely to be controversial back in the States. Since its flirtation with collapse during the financial crisis, GM has been 62% owned by the US government, so today’s news means that more US taxpayer money is being spent over here in Europe – hardly likely to go down well with all those laid-off car workers in America…

In today's bulletin:
Thompson prepares to wield the axe at the BBC
City slickers plot Man United bid - as Real Madrid top rich list again
More hot air from Mandelson on UK takeover rules?
GM triples investment in Opel/Vauxhall overnight
A Traveller's Tale: Vulnerable Dubai still in denial

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