Weekly international investment round up to 26 May 2009
• Former global auto-making superpower faces probable bankruptcy proceedings on Monday
• Car manufacturing cannibalisation puts thousands of workers at risk
The week ahead will see the greatest car boot sale of all time, only now it’s the car manufacturers themselves who are on open display. Desperate bargaining, bankruptcies, mergers, and government intervention are all among the possibilities for some of motoring’s leading brands in which only the strong will survive with potentially massive consequences for their huge workforces.
As the former global auto-making superpower General Motors (GM) prepares for probable bankruptcy on Monday, a decision is now due on what is to be done with one of its top European brands.
Opel has 25,000 workers in Germany alone so any decision announced this week concerning its future is very politically sensitive especially considering the up-and-coming European Parliament elections together with the German general election planned for September this year however, as its cash and credit lines run out GM is accelerating towards the June 1 bankruptcy D-day so time is now up for its European operations.
An unlikely bidder for Opel has emerged in the shape of Fiat. Following six years of consecutive losses Fiat returned to profit only three years ago under the guidance of chief executive Sergio Marchionne. Recently, he was instrumental in striking a deal with Chrysler in the US as they entered into bankruptcy proceedings and has said that a group comprising of Fiat, Chrysler and GM Europe would be a ‘marriage made in heaven’. Should this audacious deal go ahead Fiat would jump from being the world’s tenth largest car manufacturer to second place with only Toyota ahead of it.
The German government is nervous of such a tie-up as it could mean the axe for thousands of their car workers as both Fiat and Opel currently compete in the same small car market and while some form of state intervention may present a short term solution this will be fiercely opposed by other the other large German auto-makers. In fact, Volkswagen and Porsche have just suspended their merger talks which would also have led to further cost cutting and redundancies but with VW Chairman Ferdinand Piech being the grandson of Porsche founder, Ferdinand Porsche, their future merger would appear to be written in the stars.
In my November 2008 article entitled ‘Car Crash’ I highlighted how hard hit US consumers were shying away from the gas-guzzling monsters which had been part of the American dream for so long and that higher fuel prices were not the only reason why the livelihoods of the hundreds of thousands of American car workers plus the other estimated 4 million supporting jobs in the auto industry had been placed at risk, for the banking crisis had made it difficult for consumers to obtain car loans and the ‘Big Three’ namely Ford, GM and Chrysler were being crippled by expensive health care and pension benefits, for both their current and retired workers, which had been negotiated at a time when profits were high and Union power was strong.
For consumers and investors alike this latest round of car cannibalisation is set to change the motoring landscape for good.