GM’s Opel Should Stay Away from Fiat

A union between the two automakers would be a disaster.

Opel is currently in the process of separating itself from a bad partner that, in most regards, is reminiscent of the ancients Romans – greedy, too confident in its abilities and too complacent. This partner, of course, is General Motors. Even though Fiat has yet to acquire Opel and, thus, has yet to establish the automotive empire it desires, I already see in this Italian automaker the bad things that brought GM to its knees. And I’m sure if Opel’s management was aware of this, it would focus on enticing other buyers.

Opel has very good expertise in making competitive cars, arguably moreso than Fiat itself. So it doesn’t need help in this area. What Opel is seeking is a company that can sustain it financially in the long-run. And quite frankly, this something I don’t see Fiat being able to do. I mean here is a company that had to become a subsidiary (basically) of GM so that it wouldn’t go under, a company that GM was willing to pay $2 billion to so that it wouldn’t have to deal with it again. Just because Fiat has had a respectable turnaround under current CEO Sergio Marchionne doesn’t necessarily paint a bright future for the automaker.

Fiat is still struggling to make a decent profit ever since it separated from GM. It also incurred big costs to restructure itself into the leaner automaker it is today. Coupled with the fact that it will put down at least several billions to acquire a large chunk of Chrysler, it makes one wonder where the automaker is getting its money from and whether it will have enough money to help Chrysler move along, let alone sustain itself. Add Opel to the picture and matters look a bit more dreary.

I am sure Sergio is a highly competent leader, something he has demonstrated by turning around a near-dead Fiat. A view he holds is that there are simply too many players in the global automotive industry and that for most of these players to survive, they have to join forces. This is something few people would deny. Nevertheless, Marchionne should think to himself “aren’t I moving a bit too fast?”. Chrysler, Opel, Saab (reports have it that the Swedish brand is also being targeted) – wouldn’t this be too much of a strain on a relatively small and still-recovering company like Fiat? Wouldn’t it be too hard to manage?

From a competitive standpoint, the Chrysler partnership makes a lot of sense mainly because Fiat is not a player in North America. A partnership with Opel on the other hand is a little bit fuzzy because the German brand fiercely competes against Fiat on the European continent. There will be an obvious overlap in the offerings of both automakers, and as history has shown, that never works out well. I’m sure Marchionne will expect Chrysler and Opel to sustain themselves, but this becomes more difficult when you have one party (i.e. Fiat) calling most of the shots.

Let’s get back to what Opel is really looking for – Money. Truth be told, there are wealthier partners out there than Fiat. Opel would likely be better off enticing Chinese buyers. Even the consortium consisting of GAZ, Sberbank and Magna seems like a better long-term proposition than Fiat is. But in regards to the Chinese automakers, not only are they backed by the Chinese government to some degree, but they also seek expertise needed to build good, quality cars. Opel will get the short and long-term funding needed to sustain itself and the Chinese automaker will in return get the much needed expertise, plus access to the European market.

As it is now Opel is already a very competitive brand, and things are only getting better. The company already has the expertise needed to remain competitive, but it needs money for its long-term sustainability. I believe Fiat will not be the best partner because it has little of what Opel is looking for – money. Opel will be better off with a Chinese partner or with the consortium consisting of GAZ, Sberbank and Magna. The Chinese partner will likely have the funds, whereas Opel will have the expertise. This is a recipe for a commitment-rich relationship. In the end, both will be better off.

I have little doubt that one of the main reasons (if not the main reason) why Fiat is being seriously considered by GM is because it is willing to pay the American automaker the most up front to get Opel off its hands. Although this will benefit cash-strapped GM, it won’t benefit Opel in the long-run. So if Opel’s management and the German governments were smart, they would incentivise a more promising suitor.