Friday, 29 May 2009

That whole GM-Vauxhall-Opel bail-out thingy

I just don't get this whole outcry about the German government buying up General Motors' European operations.

For sure, it breaches the EU rules against state subsidies (an example of Good EU Rules, but as ever, they only apply to countries other than France or Germany, so in practice they are fairly worthless).

For sure, they'll shut down Vauxhall and keep Opel going, and up to 20,000 jobs will be lost in the UK (taking the upper end of the range suggested by the BBC, i.e. 5,500 employees at Vauxhall plus all the jobs at suppliers etc).

But let's not forget that there is chronic over-capacity in car manufacturing - because of this macho idea that £1 earned from manufacturing and exporting a car is somehow worth more than £1 earned from something girly like inward tourism - and that even German car manufacturers are shifting production eastwards because of the cheaper labour.

And somebody has to own GM's European operations. It appears that the German government is going to hand over $2 billion dollars of German taxpayers' finest to do so, which is about £1.25 billion in proper money.

Let's assume the UK government were to enter and win the bidding war and take over Vauxhall and Opel*, they end up with two loss-making companies**, at least one of which has to be shut down pronto (in the vain hope that supply-capacity and demand will be brought back into line), so they would shut down Opel (to protect 'British jobs for British workers') and end up with an additional colossal bill for redundancy payments and so on. Divide £1.25 billion by the 20,000 UK  jobs we have 'saved', that works out at a princely £62,500 per job, plus a pro rata share of the cost of shutting down Opel, and the rest.

Is it not better for Peter Mandelson (or Lord Thingy of Whatsit, as he is now known) to draft another one of his press releases announcing that although, sadly, Vauxhall is to be shut down, the German government has kindly offered to pay each Vauxhall worker a £25,000 redundancy payment and chip in a few million for 'local regeneration' in Luton and Ellesmere?

Or do we, the taxpayers, really want to underwrite the next British Leyland? I personally do not want to own shares in Vauxhall, neither directly nor indirectly, and I don't see why the UK government should force me to do so. Losing half our money on bailing out Lloyds/HBOS and RBS hardly recommends the UK government as a sound investor, does it?

* Actually, it does beg the question of why GM is selling off Vauxhall, Opel and Saab as a job lot. If they played their cards right and appealed to the protectionist instinct of what are, broadly, socialist-populist European governments, GM would end up selling Vauxhall to the UK government at overvalue, Opel to the German government at overvalue and Saab to the Swedish government at overvalue, but hey, they haven't even got the hang of debt-for-equity swaps yet.

** So that makes three loss-making companies, including Saab.


TheFatBigot said...

Don't forget, we now have a Cabinet Minister in charge of sacrificing businesses on the false altar of climate change.

Of course overproduction has been caused and/or cushioned by the false boom, and jobs will have to go. But they can sell the loss of jobs as a triumph in the battle against the wicked motor car.

Oh no, sorry, silly me, that would require intellectual (but not actual) honesty.

Mark Wadsworth said...

TFB, if they tried that somebody would just point out that people are driving older cars and/or buying cars made in Germany.

Wasn't there some plan a few months ago for the government to bail out parts of the car industry as long as they made cars with smaller engines?

Lola said...

Thanks for posting that, it saved me the bother.

Stan said...

After all, such a policy has been a complete disaster for Germany over the last 50 years while the UK has just surged ahead.

Mark Wadsworth said...

S, because the Germans are good at making mid-price cars and, in a way, are good at taxing, subsidising and controlling the manufacturers (they've been doing Rheinland Capitalism for sixty years). But they're crap at other things. It's called 'comparative advantage'.

Lola said...

S - Ever tried to buy a German company? The whole place is one giant mercantilist, incestuous, self serving illusion. States own banks, Banks own shares in car companies. car companies own shares in the banks. the bansk lend at below market rates and on very easy terms to companies that the States want to support. And the labour unions are in on the game. Free market it is not. It certainly isn't in the EU rules. What they've done, with the help of our stupid unions and patheitc management and epically stupid government, is to be allowed under EU 'rules' to export their unemployment to us. Admittedly we built crap cars and that helped but Ford didn't, and neither does Jaguar now, and Ford stuck with the UK until finally getting pissed off with the unions. Transits are still built here.

Plus Germany is now finding out that market distortions leave them even more vulnerable to Global downturn than true free market economies. If no-ones got any cash they won't buy BMWs. Anywhere. Plus such mercantilism has lead to a massive misallocation of capital that will cost German (sorry EU taxpayers i.e. me!) taxpayers shed loads.

Do you want more?

Oh, and for the avoidance of doubt, I like the Germans as a people.

TDK said...

Let me get the history straight

British Motor Corporation was failing in the early 1960s. The then Labour government thought the solution was mergers and so they pressured them to join with Pressed Steel and the successful Jaguar to become British Motor Holdings (BMH). That didn't work.

British Leyland was created in the 1960s when Tony Benn encouraged the successful Leyland company to merge with the now collapsing BMH. That didn't work.

Labour nationalised it during the 1970s. That didn't work.

Several re-orgs occurred. They didn't work

Government finally gave up in 1998 when they sold what remained to BAe, who sold it to BMW.

After that wonderful history of successful government intervention, I wonder what Stan would have Labour do this time.

Mark Wadsworth said...

L, ... and thanks for posting that, it saved me the bother. That's Rheinland Capitalism in a nutshell - it seems to work for them but it'll never work for us.

TDK, excellent potted history. Reminds me a bit of the forced merger between doomed HBOS (=BMC) and otherwise well run Lloyds TSB (=Jaguar)

Lola said...

TDk?MW. Whenever there's a commercial or financial disaster you follow the money and you eventually find a politicians sticky fingers all over it.

John B said...

It's interesting that Ellesmere is GM Europe's most profitable / least lossmaking (depending on the accounting, but lowest cost-per-unit either way) plant. Sure, that probably wouldn't be the case if it were independently owned by HMG, but interesting given the 'ooh, Germans are so good at making stuff, the UK has no industry only call centres and cityboys' chorus of tossers.

Mark Wadsworth said...

JB, if it's profitable in its own right, then why would the new owner of GM Europe want to shut it down?

Why doesn't some crack buy-out firm put in a bid for it before the Germans get their hands on it?

DBC Reed said...

Mark's remark that tourism was too girly for some is very much to the point.We need a lot of industry to keep strong not especially well-
educated men as the contact point for purchasing-power to be funnelled into families.The Lamont
doctrine (1991 he was Chancellor, strewth) "unemployment is a price worth paying" was always tenuous: if the unemployment benefits had been ploughed into industries to prop them up (coal mining comes to mind), you could have preserved family structures as well as revivable infrastructure.As it is we wasted the profits of North Sea Oil on a right-wing sixth former's experiment in social engineering which destroyed industry ,communities and blokes and gave us a housing bubble and
a financial services industry in thrall to those smart guys from school who were whizzes with formulae like Black Scholes and the Gaussian copula .Yah! And then they turned out to be SO crap!
No doubt the German economy will struggle but it will have the infrastructure and capital equipment to start up again.All we'll have are stoned ex-coal miners in pit cottages they can't sell, not able to move where there's any work.In the Depression 1933-39 under a national Government,three million houses were built a lot of them semis round London near the new electronic industries.A combination of cheap land and coming off the Gold Standard.
If there was an option to vote for an everybody-gets-a-job-in-a-dozy-
state-subsidised-industry I'd vote for it.Right -wingers rolled back the State under Thatcher and then utterly failed to produce the more productive system under market disciplines they talked so confidently about.

John B said...


"why close down", because under your scenario Opel needs to cut group capacity, and the German government's given it billions of € to minimise closures in Germany.

"why not sell", because an efficient car factory isn't much use if somebody else owns the designs to the cars it currently makes, unless you've got your own car designs and insufficient capacity - and everyone who's got their own car designs already has excess capacity.

John B said...

@DBC "We need a lot of industry to keep strong not especially well-
educated men as the contact point for purchasing-power to be funnelled into families" - what's wrong with having women as the contact point for purchasing power in lower-education families?

Mark Wadsworth said...

DBC, I'd agree with your summaries of Thatcherism and of the 1930s, but the correct comparison is with the original creeping nationalisation of British Leyland (see TDK above). Had all those companies not been nationalised, who knows how many would still be successfully churning out decent cars?

I don't have an answer off-hand what we should do with all the "strong, not especially well educated men", and I wish I did, but I don't agree that state-control is the answer - the Germans are good at it; we aren't.

Mark Wadsworth said...

DBC, having given this a few minutes thought, how about improving the education system so that we have fewer "not especially well-educated men"?