At a crossroads

Back in the 1960s the late Edward Lorenz, an American mathematician, drew academia’s attention to his evidence that when a butterfly flaps its wings on one side of the pacific it can theoretically affect or perhaps even cause a hurricane on the other.

Ultimately any action can have far-off, unforeseen consequences on a wholly different scale of magnitude. While Lorenz’s modelling is still being questioned and refined, its aptness in economics has been brutally demonstrated ­ the mortgages in southern California are related quite directly to the employment prospects of the British car industry worker.

So, you can imagine that if Opel mis-fires on the other side of the channel, Vauxhall has cause to fret about its chassis disintegrating.

And mis-firing it is. Opel has long been the bigger brother of Vauxhall under the GM Europe umbrella, but combine Germany’s strict business practices with a good measure of political interference and delay, and suddenly its products seem better designed than the company which made them.

As offers swoop in for GM Europe ­ Beijing Auto has just submitted one ­ it is clear that one way or another GM Europe is in for a big shake-up.

Opel presents a conundrum when it comes to this. The best options to renegotiate and restructure come from an insolvency plan, Germany’s equivalent of US style Chapter 11 proceedings. However, in Germany any suggestion of insolvency, in whatever shape or form, has the stigma of failure attached to it.

The wider public’s perception is that insolvency equals liquidation and job losses and, unfortunately, the insolvency plan is wrongly perceived as an insolvency procedure rather than a tool designed to help safeguard and restructure businesses.

Bearing that in mind, it is no surprise that politicians were quick to assure the Opel workforce of their support and vowed to prevent an insolvency of the company. It is an election year in Germany after all and times are difficult. This could make the restructuring of Opel more of a headache to untangle than if it had collapsed in a boom time.

All the same, insolvency is still the best option for Opel. Not to wind it down, but, if entered into voluntarily and well prepared rather than in desperation, with a view to protect jobs, safeguard the company and secure better terms for it to continue trading.

It was no secret that Woolworths was in need of restructuring, for example, but too little came too late. Conversely, SinnLeffers, a German high street name, recently entered and exited insolvency in six months, making good use the restructuring tool of an insolvency plan and saving the jobs of 2,500 staff in the process.

So far, so good, but where does this leave Vauxhall, whose Luton plant, as British CAR Magazine columnist Stephen Bayley lamented, ‘has been glueing and screwing Vauxhall badges on German-designed Opels’ for 40 years. Could this finally be the time for that to change?

It seems a task nigh impossible to achieve. Yet, for all the problems, there are areas where Vauxhall has promise and connections its twin does not. When the buyer of GM Europe restructures Opel and Vauxhall (inside or out of insolvency), more flexible restructuring and employment laws may give Vauxhall a few months lead on Opel.

Either an administration, as a proven and tested out-of-court restructuring tool or a court-supervised scheme of arrangement, or both, may provide the means to tackle Vauxhall’s problems and help turn its fortunes around.

The statutory moratorium available even in combination with an out-of-court restructuring would give Vauxhall a welcome and valuable breathing space while at the same time management would work closely with the potential buyer to help save the company.

Any decent business plan would have the full support of the UK government, as would be the case in Germany, but the unique UK ‘rescue culture’ and its focus on the preservation of businesses for the long term benefit of all parties involved, combined with the availability of specialised insolvency courts and highly experienced judges, may prove to be the decisive factor.

There is, however, only so much the law can do to help and assist the process. Any restructuring will fail if its focus is exclusively on Vauxhall’s balance sheet and its historic liabilities. The company will need more than an artificial turnaround. To ensure long-lasting success it will have to re-invent itself and remember some of the strengths which made it successful in the past.

In practical terms, it will take time to reignite the functions of design and research Vauxhall no longer really carries out. Vauxhall’s appeal was at its zenith when it teamed up with UK-based Lotus, which is also heavily involved in the electric Tesla Roadster. Vauxhall’s proximity and existing relationship with the sports car firm makes it the natural choice in leading the intellectual end of the automotive lifecycle.

It could yield quick results in the green and sports markets through this route. Indeed one can envisage a scenario in which Vauxhall emerges from twin restructurings with more power than it previously had, with real design, environmental and sporting connotations which would encourage any buyer to look beyond the badge.

This was vividly brought home at Goodwood’s Festival of Speed earlier in July, where Vauxhall exhibited two rarely-seen concept cars from its heyday ­ the 1966 XVR Concept and SRV Concept from 1970. These cars remain so captivating to this day that the badge screwed to them is not an issue. The committee-designed new cars it was also showcasing were the opposite.

Vauxhall could yet return to this point. It is not another Rover, or a reason to lament the end of British manufacturing. Nor is it manufacturing steam trains in a diesel era. Its Ellesmere plant is among the most efficient in Europe and its cars have excellent reliability.

It is an old-fashioned, lacklustre company trying to compete against better-financed competitors. Fate has forced it to confront these issues sooner than its competitors. But if Vauxhall, like other companies, can embrace necessary restructuring, it is not shameful nor a reason to despair. It is an advantage.

Frank Tschentscher is an insolvency and restructuring senior director with law firm Schultze & Braun’s London office