GM needs to dump Opel, Morgan Stanley says
REUTERS - Selling or otherwise divesting its money-losing Opel unit in Europe is General Motors Co's (GM.N) best option, a Wall Street analyst said on Thursday.
Morgan Stanley analyst Adam Jonas said in a research note that losses in Europe do not seem to be nearing an end and exiting Opel, while costly upfront, could be the best move. He estimated selling Opel could cost GM up to $13 billion, including upfront restructuring, an equity contribution to a buyer and funding Opel's pension obligations.
"One of the worst things in the auto industry is owning a cash-burning, resource-consuming business," wrote Jonas, who has an "overweight" rating on GM shares. "We believe the time has come for GM to find a new home for Opel."
GM said it remains committed to Opel.
"Despite the tough environment for the automotive business in Europe, we believe we have an opportunity to turn the Opel/Vauxhall business around and bring it back to long-term profitability," GM spokesman Jim Cain said.
GM's shares were up more than 4 percent, or 91 cents, to $22.67 in midday trade on the New York Stock Exchange.
The company has lost $16 billion in its European operations over the last 12 years - a figure the No. 1 U.S. automaker could even top in the next 12 according to Jonas. GM is scrambling to cut losses, introduce new cars and realign its business in that region, including forming an alliance with French automaker PSA Peugeot Citroen (PEUP.PA).
Opel has been a drag on GM's results, leading the automaker to push for changes including the ouster of the unit chief executive in July.
In 2009, GM almost sold Opel to Magna before pulling out of the deal after deciding Opel was too strategic a part of its global business. At the time, GM CEO Dan Akerson had favored the sale, but has stressed in recent months that he is not focused on the past but fixing Opel today. Jonas speculated GM "wishes they had a 'do-over' on the 2009 sale.
Jonas called Opel the "single biggest threat to GM's long-term financial health and sustainability," adding that a separation was in the best interest of not only GM but Opel as well. he compared it to when Daimler AG (DAIGn.DE) sold Chrysler in 2007 to Cerberus to escape what was a financial drag for the German automaker.
"We'd rather see GM with a 3 percent share in Europe," Jonas said, referring to the company's Chevrolet business in the region, "generating a profit than an 8 percent market share in Europe generating massive losses." He forecast Opel to burn a further $12.3 billion of cash from 2012 to 2021.
"Opel isn't merely a drain on precious cash," Jonas said. "It is a drain on engineering resources, management resources -- sapping energy and swagger from the culture of the company."
Morgan Stanley's investment banking arm has advised GM in the past.
Exiting Opel would cost GM between $7 billion and $13 billion, including $3 billion to $7 billion in cash GM would likely need to attach to the business to sell it, Jonas estimated, adding the figure could even be higher.
The overall estimate also includes $1 billion to $2 billion in additional restructuring actions by GM to show it was trying to get the business back to break-even, and $3 billion to $4 billion to fund most if not all of the company's German pension liabilities.
(Reporting By Ben Klayman in Detroit; Editing by Maureen Bavdek and Leslie Gevirtz)
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