By Dana Hedgpeth and Steven Mufson
Washington Post Staff Writer
Wednesday, November 4, 2009
The General Motors board voted Tuesday to keep its Opel division, abruptly reversing an earlier decision to sell a majority stake in the European automaker to Magna International and its Russian partner, Sberbank.
The announcement came on a day when GM posted a 4 percent gain in U.S. auto sales, its first year-over-year increase in 21 months.
Citing an improving economy and the strategic importance of Opel's compact car technology, GM pulled back from a deal that had been under negotiation since May and which had received the backing of Germany's Chancellor Angela Merkel. Merkel had personally been involved in talks, offering substantial German government financial aid in return for assurances that jobs in Germany would be protected.
GM -- which received billions of dollars in U.S. government aid and which shed burdensome union contracts, brands and debts in bankruptcy earlier this year -- will soon present a new $4.5 billion restructuring plan to Germany and other governments, GM chief executive Fritz Henderson said in a statement last night.
"We need Opel," Henderson said in an interview just last week, adding that there was a "mutual binding" of GM's other brands and Opel, a source of compact cars and engines. But he gave no indication then that the partial sale of Opel was being reconsidered. He said that Magna's plan to manufacture at a plant owned by the Russian company Gaz would help give Opel greater access to an important market. Opel's business "has to be restructured," he said. Last night GM said it would continue to negotiate with Gaz.
"Selling Opel never made sense to me, other than the fact that it was a cash drain for GM," Edmunds.com chief executive Jeremy Anwyl said in an e-mailed statement. "Europe is a major market; how can you be a global automaker without a significant presence there?" Moreover, he added, "With the likelihood of increasing fuel prices, [Opel's] expertise in small cars has to be key for the car industry moving forward, and GM can't abandon the experience it has picked up in Europe."
"While strained, the business environment in Europe has improved," Henderson said in his statement. "At the same time, GM's overall financial health and stability have improved significantly over the past few months, giving us confidence that the European business can be successfully restructured."
The about-face on the Opel sale came as GM gained in October U.S. auto sales. Overall U.S. auto sales fell from a year ago, when the auto business hit the skids, and overall sales ran below the relative heights of July and August, when the federal government's "Cash for Clunkers" program was boosting purchases. But sales were slightly better than in September, raising some faint hope that the auto market might finally be recovering from its long slump.
There was no joy at Chrysler, however. The company's October sales plunged 30 percent compared with the same period last year. The only Chrysler models to buck the trend were the Dodge Caravan and Dodge Avenger. That raises the stakes for Chrysler, which is expected to lay out its five-year plan Wednesday at its headquarters in Auburn Hills, Mich., and for Fiat, which said it would be able to turn around Chrysler after bankruptcy and billions of U.S. government dollars helped give the ailing automaker a new chance.
Kathy Graham, a Chrysler spokeswoman, blamed the decline on the company's bankruptcy, noting that Chrysler did not produce vehicles for two months earlier this year. When its plants restarted this summer, the government's 'Cash for Clunkers' program was starting and "we sold off virtually everything we had," Graham said.
"Cars are now just getting back out to dealerships and our new advertising campaign gets off this week," she said. The decline, she said, "is a short term negative for the long-term good."
Chrysler's car division sold 17,556 vehicles in October, down from 25,014 last year. It sold 31 percent fewer trucks, or 48,247 versus 69,516 a year earlier.
"Their decline is clearly cause for concern," Anwyl said. "It's a number that captures the attention. And if you look at the other car companies they're not having as big a decline, so you wonder what's going on? I think their strategy is to manage costs -- by cutting things like incentives, marketing and advertising -- to try to drive their profitability and they're willing to give up some market share along the way."
Analysts said that GM's gain in sales was helped in part by its advertising campaign and a 60-day money-back guarantee program.
"We're showing signs of momentum, clearly," said Michael C. DiGiovanni, GM's chief sales analyst, on a conference call with analysts and reporters.
George Augustaitis, an analyst at CSM Worldwide, said GM benefited from strong sales in such models as the Buick LaCrosse and Chevrolet Equinox. "People feel comfortable with getting a GM car, which is something we haven't been seeing," he said.
Ford, the only domestic car maker to not file for bankruptcy protection, said its October sales grew 3 percent, making it the company's third year-over-year increase in four months. Ford's U.S. sales executive Ken Czubay said demand for Ford's fuel-efficient products drove its market share gains. The company reported on Monday a third-quarter profit of $997 million.
Jesse Toprak, vice president of industry trends for TrueCar.com, an auto research site, said the 10.5 million vehicle sales rate in October -- up from 9.2 million in September -- is a sign that the market is improving but cautions that it will be a slow, steady recovery.
"I believe the worst is over," he said. "It is still nothing to have parties around, but if you look at it within the context of this year, October is the best month of auto sales when we take out the clunkers program. It definitely does show there is some confidence in consumer demand, but it also shows the recovery is going to be a rather slow and painful one."
Toyota said its sales fell 3.5 percent. Sales at Nissan rose 5.6 percent. Hyundai and Subaru saw their sales jump 49 percent and 41 percent, respectively.