GM Stops Digging Its Own Grave
Only a few hours after her well-received speech at the US Congress, while she was on her way back to the airport, German Chancellor Angela Merkel got the message that General Motors (GM) would not sell Opel to Canadian automobile parts manufacturer Magna. A slap in the face of the German ‘Politische Marktwirtschaft’ (in which the state can intervene in business matters that are considered of key importance to the state). Prof. Dr. Taco van Someren, professor of Strategic Innovation & Sustainability, shares his views on GM’s decision not to sell Opel to Magna.
Due to the credit crunch, rising energy prices and the subsequent drop in sales, GM was confronted with a so-called Chapter 11 insolvency procedure. A Chapter 11 allows US based firms to restart their business by separating the bad business activities from the continued and restructured future activities thereby avoiding a full bankruptcy. For GM this meant they needed to think about selling Opel. The Opel-Magna deal was prepared by an international rescue team, including political stakeholders such as Chancellor Merkel and Russian Prime Minister Putin. As part of this deal, the German government was ready to give Opel 4.5 billion euros in credit in order to turn it into a profitable enterprise and save as many (German) jobs as possible.
Hitch: Food for speculation
On the 3rd of November GM eventually decided not to sell Opel. The ‘genius’ behind this move was Edward Whitacre, a member of the new Board of GM. This new board was installed after the Chapter 11 insolvency procedure.
All political leaders involved in the process – Merkel and Putin as well as the American president Obama - declare that they had no early warning signals whatsoever about the decision of the Board of New GM not to sell Opel. But how is that possible? For they were closely involved in the rescueing process of Opel.
Several facts feed speculation:
• After the Chapter 11 insolvency the Board of New GM had been reshuffled. Ten of thirteen Board members were nominated by the US
government. This new Board had the task to supervise the $50 billion tax money for GM and the 60% governmental ownership in GM. Since the
new Board of GM is surely at arm’s length of the Oval Office, it is highly unlikely that Obama did not know of the coming decision not to sell.
• Short term thinking dominates this game. Several of the new Board members - not only Edward Whitacre, but also Daniel Akerson and David
Bonderman - are known for judging and deciding along balance sheets and profit statements. They are not known not for diplomatic
considerations concerning their decisions and would not mind stepping on the toes of some politician.
• Whitacre , as a former CEO of AT&T, pursued an aggressive growth strategy. Losing markets like Europe and future technologies to Magna
would not be an option in this aggressive growth strategy.
In short, there were weak and strong signals enough about a possible hitch in the Magna deal. So, was GM’s move really that unexpected?
180-degree turn: The sustainability issue
How can GM turn be explained? What is Opel’s value for GM?
For instance, for many years, Opel has been a training institute for future GM bosses. GM top managers were parachuted at Opel to gather some European experience as well as to learn to act as a CEO of a large division. Most of them stayed for a few years and then returned to the States.
However, of all GM’s arguments to keep Opel – prevention of technology transfer to Russia, avoiding losing European market and the loss of the small car technology center in Rüsselsheim – sustainability is the most relevant. Van Someren: “In my own experience - gathered in assignments in the automotive industry since the early 1990s - the issue of sustainable development has been misjudged by all automotive OEMs (Original Equipment Manufacturers) except Toyota. More than the other issues mentioned, the sustainability question forced the Board of GM to make the bold decision of making a 180-degree turn and keep Opel.”
In recent years, on lower levels within the company, Opel started focusing on making higher quality cars and eco-efficient engines. It reinvented itself, so to speak. In fact, the R&D department in Rüsselsheim developed and now owns leading edge technology with regard to small sustainable cars. This knowledge is the future core of the New GM. In Van Someren’s view, one thing is certain: The GM concern will not be able to survive without properly addressing the sustainability issue. “Selling it would be like GM is digging its own grave.”
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