Analysts urge GM to drop Opel

Nathan Bomey / Detroit Free Press /

DETROIT — Morgan Stanley auto analysts on Thursday recommended that General Motors jettison its struggling Opel unit, which is piling up losses for the automaker in Europe.

The move adds pressure for GM to consider a sweeping move, instead of incremental steps, to fix its problems in Europe.

The experts, including lead analyst Adam Jonas, recommended a “separation” of GM and Opel, which is bleeding cash as European consumers pull back on spending in the midst of the continent’s sovereign debt crisis. The analysts said it was the “best option for both GM and Opel stakeholders.”

The recommendation “reflects a significant deterioration in the European car market and widening operating losses,” the analysts said in a research report.

Discharging Opel would be something of a do-over for GM, which came close to selling Opel during the auto crisis in 2009. At the time, several executives, including current GM Vice Chairman and European restructuring chief Stephen Girksy, convinced the company to keep the unit.

Ridding itself of Opel would be costly for GM. Morgan Stanley suggested it would cost $7 billion to $13 billion to off-load the Germany-based unit, which develops and manufactures cars throughout Europe. GM had about $33 billion in cash or equivalents at the end of the second quarter.

Good for stock

The analysts predicted it could lead to a 50 percent appreciation in GM’s stock price. GM is making big profits in North America and China, but its stock price has been weighed down by Europe and other factors.

A big price increase in GM shares could be a boon to the U.S. government, which still owns 32 percent of GM’s common stock.

GM lost $617 million in Europe in the first six months of 2012, compared to a $107 million profit a year earlier. The automaker has lost an average of more than $1 billion a year in Europe for the past 12 years.

“Opel’s distraction and financial burden represents a far greater threat to GM than the unfunded pensions,” Morgan Stanley said in a research note.

Unions have a tight grip in the region — and particularly in Germany, where labor laws make it expensive and cumbersome to reduce capacity and close plants.

GM recently negotiated a tentative deal with union IG Metall and German works councils to close an Opel plant in Bochum, Germany, after 2016. The labor groups also recently agreed to 20 “short workdays” for about 9,000 workers in Ruesselsheim and Kaiserslautern. That deal is expected to save GM about $50 million.