All About B2B

Well this has been an interesting week for the automotive industry, GM finally announced their move into Chapter 11 and they also announced that a number of their brands have been successfully sold off. GM entering bankruptcy proceedings had been widely predicted for many weeks but will the $30billion injection of government funds be enough to help GM through its extensive restructuring process and how will the Obama administration manage the day to day operations of the company?

For the past few months GM has been working hard to reduce costs by divesting off various parts of its global business and terminating dealer relationships so that they can focus on four core brands. So what has happened to the iconic brands within the group and is there a chance that GM will emerge from this episode like a phoenix rising from the flames?

This week Hummer was sold off to a little known Chinese industrial equipment manufacturer, Sichuan Tengzhong Heavy Industrial Machinery Co, who has pledged to keep Hummer development and manufacturing in North America. This is actually a more significant acquisition than it looks as this Chinese manufacturer has acquired not only a leading U.S car brand but also gets an indirect foothold into the North American market.  This is something that no other Chinese OEM has achieved as yet. The increase in fuel prices and the subsequent quest to find greener vehicles really put the nail into Hummer’s coffin and I thought late last year that GM would probably end up selling Hummer to either a Chinese or Indian company, mainly because those countries have up until now been less affected by fuel price rises and green campaigns. Ford has been looking to sell off its Volvo division for nearly a year now and I still believe that Volvo will end up in the hands of a Chinese OEM. Given that many Chinese OEMs are having trouble making inroads to western markets due to concerns about the safety of their vehicles, acquiring a car brand with the safety ‘halo’ that Volvo has will be a smart acquisition for a Chinese OEM.

GM also announced this week that they had successfully sold their European operation to a group headed by the Canadian automotive parts manufacturer, Magna. Throughout the buyout discussions, Magna has always been positioned as the main bidder against Fiat for control of the GM Europe operation which comprises of the Opel and Vauxhall car brands.  In fact Magna will only own 20% of the new group, 35% will be owned by the Russian company Sherbank, GM would retain a 35% stake and Opel’s employees would own the remaining 10%. This is an interesting move as the Russian car market is growing exponentially even with a global recession and Magna has seen an opportunity to expand into Russia via the Opel brand. Magna recently won a significant deal from Porsche to take over the manufacturing of their Boxster and Cayman sports cars from Valmet of Finland. So despite the global downturn in the economy some automotive companies seem to be doing quite well at the moment, and I think this acquisition is one of the first by a Tier 1 supplier to the automotive industry, is this a growing trend?, will we see some of the more successful Tier 1 suppliers step up to become complete vehicle manufacturers in their own right?, only time will tell.

GM Europe’s brands of Vauxhall and Opel are very successful in their own right, mainly because they produce a range of high volume, small cars which appeal to the European market. In fact my family, like many others across the UK has had a Vauxhall car as their daily runabout at some point in their driving career. Their cars are cheap to run, easy to maintain and has always been a good seller both from a private and business buyer perspective. This is the main reason why the GM Europe brands were able to find a buyer so quickly. I wonder what would have happened if GM North America had decided to take some of their smaller European car platforms to North America, there is a chance that this whole Chapter 11 process could have been avoided. Ford are now using the experience of their European operations to develop smaller car platforms that can be used globally.

Just before the collapse of GM, they tried to sell the successful Opel Astra in North America under the Saturn brand, now Saturn is up for sale as well. Saturn has so far received nearly 15 bids for the entire operation, including one from Roger Penske. In fact today it was announced that Penske was the winning bidder for the Saturn brand paying between $100million – $200million for the brand and associated assets. Finally, GM’s Swedish brand Saab has three potential buyers lined up, again one is believed to be a Chinese company and another is the Swedish super car manufacturer, Koenigsegg. I am sure from a job preservation point of view, another Swedish company taking over Saab would be the preferred option.

So over the past few weeks, General Motors has gone from being ‘Global Motors’ with significant manufacturing operations and joint venture operations in every major automotive market around the world to ‘Government Motors’. They have had to sell a lot of their brands at knock down prices in order to reduce operational expenses. The U.S government has said that it does not intend to be the long term owner of a car manufacturer, despite now owning 60% of the company, their goal is to help GM restructure, become leaner, greener and focus on four core North American car brands. As part of the restructuring GM will acquire some core business units of Delphi’s business and provide a cash injection of  $2.5billion to a private equity firm who will hopefully help Delphi emerge from their own Chapter 11 proceedings.

In an earlier blog entry I made reference to an article over on Informationweek which discussed GM’s global IT infrastructure. So who would like to be working as part of GM’s IT organisation at the moment?, after spending years developing a global IT infrastructure to support their global manufacturing operations they now have to unravel it, in order to allow the divested operations to be able to operate autonomously.  In fact there was a great article yesterday over on Information week which asked GM’s CIO six questions about his future IT budget and outsourcing strategy following their filing for bankruptcy.

This is an ideal time for GM to re-evaluate its IT vendor contracts and possibly see how outsourced IT services can benefit their operation during this period of restructuring. Whether GM exits chapter 11 within the next few months or not remains to be seen but one thing is for sure there is still a lot of work to do to restructure the whole business before this can happen.