GM Opel Crisis reveals Europe as New Battleground between Automakers

Everyone is looking at what happens to Opel. The German division of General Motors is under restructuring after GM decided not to sell it to Magna International and Sberbank of Russia. During the talks between GM and Magna concerning a sale, the German government provided a bridge loan to Opel to make certain that it survived. And there was talk that the German government would provide financial assistance once Magna took it over.

Well, now that GM has decided to keep it the German government has decided not to provide financial assistance and it is advising other governments in Europe not to help it. This as GM attempts to persuade governments to provide help.

It is said that if European governments do decide to assist Opel, other European car makers may suffer. Such assistance may convince GM not to close outdated facilities and would allow an unfair pricing difference between Opel and other cars made by European auto makers like Volkswagen and Peugeot. In other words, the subsidies will prevent Opel from doing what it has to do but force the other European companies to do it. This weakens companies like Volkswagen, Ford and Peugeot because they all have to reduce capacity.

It is said that the European workforce in the car industry will have to be cut by 25 percent to match output with demand.

Meanwhile, Asian auto makers like Toyota, Hyundai and Kia are seeking to become a larger segment of the European market. They are opening up production plants in central and eastern Europe. Labor and production costs are cheaper there in comparison to western Europe where the major European car makers are located. Executives at Daimler point out that wages in Hungary are about 10 euros an hour while they are 44 euros an hour in Germany. Pundits forecast problems when more Asian auto manufacturers invest in eastern Europe.

Another reason why European auto makers are not closing factories is due to the success of the European Cash for Clunkers program. Analysts say that the incentive has artificially increased demand. Pundits say that sales will drop in the second quarter of 2010 which will kill the small car market.

via Business Week