GM Europe – In For A Life Of Reilly?

Either Nick Reilly, the new chief of GM’s European operations, is absolutely mad or he really is the right man to fix the vast range of problems at the ailing carmaker for good. Having lost far more money than it has actually managed to occasionally make in recent years one may be forgiven for seeing this challenge as little short of a poisoned chalice for Reilly. Indeed, sceptics might argue that the US based GM parent company would shed few tears if Reilly fails to bring its problem child to heel and that it may not be that much longer before GM finally throws in the towel on its troubled European baby. Will that be the case? Could Nick Reilly, a thirty-four year veteran of the company, actually manage to sort out the Adam Opel and Vauxhall operation and secure more than just a short to medium term future? While it is probably true to say that there is no tougher volume automotive manufacturing nut to crack in Europe right now than the sorting out of GM Europe and its Opel and Vauxhall brands my personal view is that he can.

Following confirmation of the European appointment last month it had been hoped that Mr. Reilly would manage to work pretty damn fast to be in a position to confirm a formal business plan that we already know will include many thousands of job cuts in Belgium, Germany, Spain and the UK. However, we understand that the pre-Christmas target date is now considered as being tight and that it may well now slip into the early part of the new-year. Given the damage that was done politically and throughout the European company through the failed attempt to sell the Opel/Vauxhall operations to the Magna consortium it is imperative that Reilly has secured general agreement with the individual plant trade unions who must bear the brunt of the near 9,000 jobs that are expected to be removed across Europe and of course, with the governments themselves. To assist in the re-organisation GM has requested that governments fund a suggested EUR2.7bn overall reorganisation cost with the GM parent putting in EUR600m. So far, so good and Reilly was at least reported last week saying that he had received positive signals of likely government support. However, on the other side of the coin that there has as yet been little feedback from trade unions and workforce although our own view is that as there is little alternative and all too little bargaining power they will, following necessary noises, eventually acquiesce. Even so and even if agreement comes from both government and workers alike getting the leviathan GM Europe operation moving along the right lines will not be easy. Indeed, even assuming that the Antwerp plant is fairly quickly closed down and that the sizable job cuts planned for all four Adam Opel plants in Germany, the Luton, England van operation together with some in Spain and at the UK’s Ellesmere Port plant can be implemented during the first half of next year it could still take as long a five years plus substantially more investment funds before the future of GM Europe is secured. Indeed, while we would doubt any further attempt to sell the European operations would occur over the next two to three years we would not rule out the possibility that GM European operations might eventually be placed into some kind of partnership with another automaker.

Of course, the suggestion above is based on nothing but conjecture on my part. However, given that within three years Reilly might well have managed to turn GM Europe round to some kind of half decent profitability, that the new UK built Astra is doing well and that investment in plant, aimed at significantly reducing costs, plus much needed additional investment in new models that can successfully compete with models from the Japanese based stable, with those from Volkswagen, from Renault, from Peugeot, from Ford and others GM Europe should be in reasonably valuable position. Whilst there is plenty of evidence of failure of both merger and partnership amongst carmakers – look no further than Daimler/Chrysler for this – it is also true that partnerships amongst carmakers can and do work. For an example look no further than the shared ownership of Shanghai GM, seen by most as the jewel in the crown of GM’s foreign investments. And of course, five years from now, who might one believe having already entered the export game might just by then be looking to have car manufacturing operations in Europe? Could it possibly be the Chinese? By the way, which GM operations do you think Mr. Reilly has overseen through the last few years……?………none other than China!

Back to reality though and for Reilly the next few weeks, months and maybe even couple of years will be fraught with great difficulty as he attempts to revive a brand (Opel) that some believe has lost its way and, restricted by government over what he might just have preferred to do in the game of taking out cost, bringing the Continental European operations of Opel kicking and shouting into the 21st century particularly when it comes to meeting the competition on cost, technology, quality and fashion. This though is a man that is very much up to the job in my view and one determined to succeed. Perhaps a year from now to the ordinary onlooker GM Europe might not look that much different than it does today but don’t let that thought kid you into believing that behind the large windows things won’t already be very different. Nevertheless, sales are unlikely to be that much better and we suspect that European markets probably will be no better than they are today. It is well recognised that there is far too much capacity in European car making and cutting one plant in Belgium won’t change the position much. More jobs will need to be lost further down the line and more closures than are currently planned cannot be ruled out. Turning GM Europe round may be almost as tough as turning Fiat round three years ago – but as Fiat proved, it can be done. Should it be done with government money? Of course not but although the EU will no doubt make a few rude noises over the GM Europe plot they will probably wave it through. Would it be better to let nature take its cause – survival of the fittest and all that allowing big chinks of GM Europe particularly on the Continent to go to the wall? Of course it would but as it isn’t going to happen we all have to get real and accept the inevitable bail out. Can GM work its way out of this provided it gets sufficient help? With Reilly in charge, I personally reckon that it can – just!