General Motors is keeping its Opel/Vauxhall European brands, despite losing money. In an attempt to reduce costs, utilize its plants’ output and face the European financial crisis, it has formed an alliance with PSA Peugeot Citroen.
Yet analysts are not convinced that any rescue plan GM may have devised for its ailing European brands can succeed. In fact, Morgan Stanley analyst Adam Jonas said that, while it might be costly right now, selling Opel is in GM’s long-term interest.
Its European operations have cost GM US$16 billion in the last 12 years, and Jonas estimates that if it decides to hold on to Opel, it will lose a further US$12.3 billion until 2021. Since selling the brand would cost an estimated US$7-13 billion or even more, Jonas says it is the right thing to do.
“One of the worst things in the auto industry is owning a cash-burning, resource-consuming business”, Jonas wrote in his research note. “We believe the time has come for GM to find a new home for Opel”, he added.
GM CEO Dan Akerson, who almost sold Opel to Magna International in 2009 before changing his mind at the 11th hour, insists that he is not giving up on Opel, which only yesterday announced its expansion to Australia and Chile.
Company spokesman Jim Cain said: “Despite the tough environment for the automotive business in Europe we believe we have an opportunity to turn the Opel/Vauxhall business around and bring it back to long-term profitability.”
Jonas, on the other hand, believes that Chevrolet should be GM’s only European mass-market brand: “We’d rather see GM with a 3 percent share in Europe generating a profit than an 8 percent market share generating massive losses”.
By Andrew Tsaousis
Story References: Reuters
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