BusinessBusiness RecoveryAt a crossroads

At a crossroads

Restructuring could put Vauxhall back in the fast lane and teach their German counterparts a thing or two

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

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

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