Analysis: GM options grim as it returns to Opel quagmire

DETROIT/FRANKFURT Tue Nov 22, 2011 5:21pm EST

Traffic signs leading the way towards the exit of the parking facility outside the headquarters of German car manufacturer Opel in Ruesselsheim, 20km from Frankfurt, June 10, 2011. REUTERS/Kai Pfaffenbach

Traffic signs leading the way towards the exit of the parking facility outside the headquarters of German car manufacturer Opel in Ruesselsheim, 20km from Frankfurt, June 10, 2011.

Credit: Reuters/Kai Pfaffenbach

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DETROIT/FRANKFURT (Reuters) - As General Motors Co (GM.N) Vice Chairman Steve Girsky takes the wheel at struggling German brand Opel, he had better fasten his seatbelt.

Options for restructuring Opel range from bad to worse and could include a form of bankruptcy, analysts and bankers say. Costs will have to be slashed further, steps that could include politically charged job cuts and plant closures in Europe.

Girsky, who was named chairman of Opel's supervisory board on Monday, could look for new partners for Opel to share costs, and even return to the idea of selling the brand once it has been repaired, analysts said.

"You can't say the words 'all options are on the table, we rule out nothing' unless there's something fundamentally changing," said Morgan Stanley analyst Adam Jonas, who expects GM's latest restructuring plan to be announced by early 2012.

The fact that Girsky, a 49-year-old former New York investment banker, has been given charge of turning Opel around shows that GM is coming to terms with a reckoning that most European automakers and governments have long resisted.

"It suggests that fixing Europe is a top priority for General Motors and they are shrinking the chain of command so that Detroit is on top of every detail," Jonas said.

This is not the first time Girsky, who joined Opel's board in January 2010, has come to the rescue of Opel. As a GM director, he voted to keep the unit when GM reversed a decision to sell it in 2009.

"People tend to view Opel as this thing you can just flip overboard and that's sort of not the way we view it," he said at an investor conference in September. "We view it as something that's integral to GM."

On Monday, Girsky said GM would focus on boosting profit margins and cutting costs by leveraging GM's global scale. GM officials declined to discuss detail of its plans. GM also named Chief Financial Officer Dan Ammann and Tim Lee, the president of international operations, to the Opel board.

The changes at the top come only two months after GM executives voiced satisfaction with Opel's restructuring and denied it was for sale. Since then, the eurozone debt crisis and weakening demand led to the exit of GM's Europe chief and resulted in a $300 million third-quarter loss for GM in Europe. GM also dropped its 2011 break-even target for Opel.

GM Chief Executive Dan Akerson, one of two board members who voted to sell Opel in 2009, has called Europe's economy a "morass" and said Opel needed to lower its break-even point.

After emerging from bankruptcy in 2009, GM dropped plans to sell Opel to a consortium led by Magna International Inc (MG.TO) and Sberbank Rossii OAO (SBER.MM) following months of negotiation that involved the German government.

Instead, in a move that confounded Berlin, the GM board launched a restructuring intended to get the unit, which lost $1.6 billion last year, back on track.

Girsky, whose responsibilities include GM's global strategy, will need to draw on his experience as a Wall Street analyst and an advisor to GM's U.S. labor union as he takes on the Opel dilemma. The job represents the highest-profile assignment for a GM outsider seen as a dark horse candidate to succeed Akerson.

Girsky's options include trying to reopen Opel's labor contracts with the IG Metall union that represents factory workers, closing a plant to further lower costs or possibly a "contained bankruptcy" for the unit, analysts said.

THE UNFINISHED JOB

In its 2010 annual report with U.S. securities regulators, GM had warned that a failed restructuring of Opel could prompt a local bankruptcy filing. Jonas said he did not believe that was the preferred course for GM management, estimating it could force payments of up to $6 billion to write off loans to the unit.

Officials at IG Metall, which represents Opel's plant workers, insist that no job cuts or plant closures are possible until the current labor deal expires at the end of 2014.

"We've said repeatedly the restructuring in Europe is for the most part completed," Opel spokesman Stefan Weinmann said. "This doesn't mean the work is finished. You still have to achieve further cost savings."

While GM officials have denied they want to sell Opel, that talk will not go away, especially after Akerson and Ammann each said nothing was off the table. But bankers said Opel's cost issues must be solved first.

"It's very difficult to sell assets in Europe currently, but Opel is even more difficult. You can't sell a restructuring case," said an auto banker, who asked not to be identified.

There is no sign that past Opel suitors are lining up to talk to Girsky now.

Magna officials declined to comment, but a source familiar with the company's thinking said the auto parts maker is not interested in buying any automaker. Fiat CEO Sergio Marchionne said in June the Italian automaker had no interest in buying Opel. That has not changed, a person close to Fiat said.

The longshot remains the China card. In September, IG Metall's Franz called on GM to offer shares in Opel to its joint venture partner in China, SAIC.

But in any scenario, big questions remain unresolved, including access to GM's technology and intellectual property as well as the treatment of the U.S. automaker's pension obligations in Europe, Jonas said.

"What you're seeing here is a prelude to a massive restructuring, and I don't think it will be limited to GM. Europe has soft-shoed this for a long time. It's awfully close to a total meltdown," said a second banker, who asked not to be named.

(Additional reporting by Philipp Halstrick in Frankfurt, Deepa Seetharaman in Detroit and Nicole Mordant in Vancouver; Editing by Gary Hill)

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