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Magna-Opel deal may proceed

November 1, 2009


Magna-Opel deal may proceed


General Motors’ board of directors may make a final decision Tuesday on what to do with the automaker’s Opel/Vauxhall business in Europe, but neither Opel/Vauxhall nor any of its potential owners is out of the woods yet. The odds are that GM’s board will endorse selling 55% of its European business to Canadian supplier Magna International and Russian bank Sberbank, but none of the parties involved will be getting exactly what they wanted. The saga has dragged out for six months now. The U.S. government’s restructuring of GM is a marvel of efficiency and decisiveness by comparison. GM’s board could still decide to scrap the sale, which the German government effectively rammed down its throat by making loans to keep Opel in business contingent on the deal. GM needs Opel — for now, anyway — to develop key new models like the Chevrolet Cruze compact and the new Buick Regal sedan. The Cruze promises fuel economy around 40 m.p.g. and may be the most important vehicle GM will launch in the United States next year. The Regal, already popular in the lucrative Chinese market, is vital to making Buick an appealing brand that competes with the likes of Acura and Lexus. GM wouldn’t have picked Magna/Sberbank if it had any choice, but the German government insisted. That rankled the European Union, which suspected the sale was more about protecting German jobs than fixing Opel’s problems — too many plants and too many workers. Germans were promised the Magna deal would protect jobs in their country. Politicians sugar-coated the deal so the public was shocked when it found out Magna/Sberbank planned to cut just as many jobs as GM would have on its own, and would also help build up the Russian auto industry. The whole thing smelled like week-old fish, particularly when neither of the German government’s own representatives on the board evaluating the deal voted to sell to Magna. GM’s representatives supported it, but only because the German government made it clear the options were either Magna or no bailout money and the imminent shutdown of Opel. The European Union chastised German Chancellor Angela Merkel and demanded she tell GM — in writing — that money would still be available if GM found a partner other than Magna. A lovely sentiment, but by the time the letter arrived, GM’s preferred bidder had moved on to other business. Despite that, GM’s board has been weighing the matter longer than anyone expected. They could yet pull a rabbit out of their hat, in the form of a surprise partner or perhaps even keeping Opel wholly GM-owned, as it’s been since 1929. While all this was going on, Magna faced pressure from governments and unions around Europe to scale back the job and plant reductions it planned. It acquiesced. Many outside observers now question whether it can run Opel profitably. Meanwhile, Volkswagen and BMW, both major customers of Magna’s component business, said they’d re-evaluate their work with the company if it bought Opel, a significant competitor. As if that weren’t enough stress on the fragile deal, the Russian auto industry was imploding offstage. Sberbank suggested it might use Opel to help prop up not just its previously announced automotive client, the struggling GAZ, but also the mammoth and near-bankrupt VAZ, which already has a deal with Renault-Nissan. Worries that Magna may use Opel to compete with Chevrolet’s growing and profitable business in Russia were a primary reason behind GM’s reservations about the sale. GM also has concerns about sharing advanced technologies it’s developing with Magna’s ever-changing roster of partners. It’s probably too late now for GM to find another partner, and probably too expensive for it to fix Opel on its own. The German-brokered deal stands a good chance of winning the board’s support this week. Whether anybody is happy with the result is another matter entirely.

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