GM Europe: is this a decision?
By: Dr Peter Wells, Wednesday, November 04, 2009, AutomotiveWorld.com
At the last minute, the Board at GM Europe came to a difficult and momentous decision - not to sell the business to the consortium lead by Magna. Across Europe, thousands of workers will breathe a sigh of relief, labour leaders will herald a great day for the new certainty, and suppliers and dealers will once again focus on making the operation run efficiently. Or will they?
First, this is still not a done deal. GM has to 'sell' its version of the restructuring plan to governments around Europe, having previously burned an awful lot of political capital in the preceding months of searching for suitable purchasers. This alone is going to be difficult.
Second, a great deal of damage has been done in the interim, particularly to the brand but also in terms of the confidence of the workforce and of management, and that damage will not be resolved overnight. The air of crisis does not dissipate so easily.
The board deserve credit for not being stampeded into a decision that would be difficult to reverse and could have been crippling for the ultimate fate of the global GM business, but that might not be enough.
Third, even if this solution does eventually proceed there is going to be a lot of restructuring work to be done - major corporate surgery that could well involve the closure of one or more plants in Europe. Workers may feel safe, but unfortunately in these troubled times 'safe' is too strong a word.
And last but not least, who is to say that the economic recession in North America and Europe is over? Yes the signs in some respects have been positive, and without doubt the automotive industry has been a major beneficiary of government largesse, but in other respects the economic fundamentals remain the same. Countries like the US and the UK continue to have huge trade deficits, continue to have burgeoning government and personal debt, and have so far floated on a miracle of consumer confidence that could easily evaporate when more stringent times re-emerge.
Equally, it will take time for the new senior management team at GM to chart a clear way forward for the business, and to prove their worth in the light of the criticism that much of the previous regime endured. The board deserve credit for not being stampeded into a decision that would be difficult to reverse and could have been crippling for the ultimate fate of the global GM business, but that might not be enough.
GM could not afford to lose the European division, and even with a remaining shareholding there had to be concerns over issues related to future models and intellectual property rights.
In the end this case perhaps demonstrates that economies of scale and global integration might generate major benefits in cost reduction and efficiency, when things are working fine. But when things go wrong, that very scale and cross-integration become the obstacles to fast and effective response.
GM could not afford to lose the European division, and even with a remaining shareholding there had to be concerns over issues related to future models and intellectual property rights. Other OEMs would do well to learn this lesson also, because who is to say which company will be next? Perhaps this is another sign that globalisation is not all benefits as we have previously thought, and that in turbulent economic conditions it is as well to be nimble as it is to be big.
Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com's sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Published on Wednesday, November 04, 2009
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