Why is America’s biggest carmaker, General Motors, suddenly quitting Europe, dumping the German Opel and British Vauxhall subsidiaries it has owned since the 1920s? To listen to G.M. tell it, offloading the brands in a fell swoop to PSA Group — a consortium whose owners include the French government, China’s Dongfeng Motors and the Peugeot family — makes simple, financial sense.
But any benefit of the $2.9 billion sale is worrisomely short-term, an unwelcome skid away from the passenger-car technology. Any gain for G.M. in selling off the divisions known for building some of its most sophisticated small- and medium-sized passenger cars is outweighed by the real hazard to the corporation’s longer-term health as well as that of the world’s population, who most clearly don’t benefit from greater emissions of carbon dioxide and other pollutants associated with larger, less fuel efficient cars. Along with G.M.’s decision to join other car companies that have pleaded for a rollback of pending fuel economy regulations, the sale raises the question of how much G.M. learned from previous energy crises and its 2009 bankruptcy and federal bailout.
It is true that purging its European operations, which have admittedly lost billions since the turn of the century, could free up cash in the not-too-distant future for G.M. This in turn will presumably enhance the firm’s ability to buy back its shares and help to increase shareholder value. Indeed, the hope is that share prices will rise despite the $4.5 billion write-down the carmaker is expected to take against the European sale, as well as the pension obligations in several countries it will remain stuck with.
Getting shares to rise is an understandable preoccupation of G.M. executives, including President Dan Ammann, a former Morgan Stanley managing director, but in today’s market it’s not necessarily a healthy one. Viewed as terminally unsexy compared with tech stocks, the company’s shares have remained, like most automobile outfits’ valuations, depressed for years, even in 2016, when G.M. posted record profits. But explaining the Opel sale (which makes PSA the second-biggest company in Europe after Volkswagen), G.M. cited the regulatory climate, which the company notes with understated accuracy has changed. This had led it to now focus resources on the American and Chinese markets, which — it doesn’t mention but might as well — are more profitable. The idea here is to be more profitable whatever the cost.
It is true that purging its European operations, which have admittedly lost billions since the turn of the century, could free up cash in the not-too-distant future for G.M. This in turn will presumably enhance the firm’s ability to buy back its shares and help to increase shareholder value. Indeed, the hope is that share prices will rise despite the $4.5 billion write-down the carmaker is expected to take against the European sale, as well as the pension obligations in several countries it will remain stuck with.
Getting shares to rise is an understandable preoccupation of G.M. executives, including President Dan Ammann, a former Morgan Stanley managing director, but in today’s market it’s not necessarily a healthy one. Viewed as terminally unsexy compared with tech stocks, the company’s shares have remained, like most automobile outfits’ valuations, depressed for years, even in 2016, when G.M. posted record profits. But explaining the Opel sale (which makes PSA the second-biggest company in Europe after Volkswagen), G.M. cited the regulatory climate, which the company notes with understated accuracy has changed. This had led it to now focus resources on the American and Chinese markets, which — it doesn’t mention but might as well — are more profitable. The idea here is to be more profitable whatever the cost.
But if anything seems shortsighted about the sale, it is the self-inflicted loss of passenger- and small-car engineering smarts that Opel represents. With the Trump administration’s avowed intention of rolling back Corporate Average Fuel Economy, or CAFE, standards and frontal assaults on the Environmental Protection Agency and other air-quality regulators, G.M. has seemingly forgotten all the earnest statements it made back in 2009 when it was seeking a federal bailout. Back then, it just couldn’t wait to get the Chevy Volt into production, and it promised it was going to be a responsible partner in cleaning up the environment it helped pollute. Now it wants to sell more gas-guzzling Chevy Suburbans, which are so much cheaper to make and more profitable to sell than ordinary-size Chevy Cruzes and Buick Regals that, well, they just can’t help themselves.
The last time gas prices soared, G.M.’s lack of competitive passenger cars helped, along with a failing economy, push it into bankruptcy. And giving up on Opel (whose models are rebadged as Vauxhalls for the British market) is a big step in the direction of not having competitive passenger cars. Opel is a key center of G.M. excellence, competing with high credibility in the tough German market, where cars with superior safety, economy and driving dynamics are expected, unlike in the United States and China. In Opel therefore one finds what is arguably G.M.’s finest assemblage of experience, knowledge and smarts in the world of passenger and small car design. Many of today’s most dynamic G.M. passenger-car offerings — its best Buick sedans, for instance — are rebadged Opels. Moreover, the loss figures claimed for Opel and Vauxhall in Europe don’t account for the revenue generated by these vehicle designs worldwide when sold under G.M. nameplates.
Walking out on Europe and its European workers may be a recipe for short-term profit, but in the long term it could sting. The nativist impulse to quit the world’s third-largest car market may suit the mood in Washington. But as G.M. ought to know by now, it’s easier fixing a brand than starting a new one.
Jamie Lincoln Kitman, a lawyer, is the New York bureau chief for Automobile Magazine.