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General Motors tries to restart deal with Magna in Russia

November 8, 2009 http://detnews.com/article/20091108/AUTO01/911080312

General Motors tries to restart deal with Magna in Russia

CHRISTINE TIERNEY
The Detroit News

General Motors Co. hopes to salvage a key element of the collapsed plan to sell its Adam Opel GmbH carmaker — a three-way production deal in Russia.

The Russian component of the plan seemed doomed after GM decided last Tuesday that it wouldn’t sell a majority stake in Opel to Canadian parts supplier Magna International Inc. and its Russian partner Sberbank.

But GM officials said last week that they still hoped to negotiate an agreement with Magna and Russian automaker GAZ.

A source familiar with the situation said GM has already contacted Sberbank.

The Russian-controlled bank with strong ties to the Kremlin had agreed to acquire 27.5 percent of Opel and transfer the stake to a Russian automaker, most likely GAZ.

GAZ, Russia’s No. 2 automaker, Magna and GM began discussing a production deal three years ago. But the negotiations fizzled after GAZ owner Oleg Deripaska ran into financial trouble. Soon afterward, GM was struggling with its own financial difficulties.

Deripaska and Magna Chairman Frank Stronach have close ties and, for a time, Deripaska was a big investor in Magna.

"I see us being able to pick up with Magna and GAZ and continue to try to develop this business–  but obviously now as part of a GM-retained Opel, not as part of a Magna-Sberbank consortium," GM Group Vice President John Smith, the chief negotiator of the Opel deal, told reporters last Wednesday.

An outcry in Europe

GM’s unexpected decision to keep Opel sparked an angry outcry in Germany — and a prickly reaction in Russia, as well.

Vladimir Putin, Russia’s powerful prime minister, was quoted as saying that, "GM didn’t discuss anything with anyone."

"It doesn’t hurt our interests, but it speaks of a peculiar culture of communication of American business with its business partners," Putin said. "This arrogant attitude is directed first and foremost at the Europeans rather than at us."

Warren Browne, a former head of GM Russia, said he believed that GM would be able to work out an arrangement with the Russians.

"The end of the Opel deal does not preclude GM from continuing to help GAZ with Magna’s support," Browne said.

The U.S. automaker may face more resistance in Germany. But Smith said he was not surprised by the reaction in Opel’s home country. Most German state and federal officials and Opel’s labor representatives in Germany had favored a Magna-Sberbank deal.

But GM would not cut more jobs than Magna would have, Smith said. All the restructuring proposals for Opel, including one from Brussels-based RHJ International, were patterned on a restructuring plan for GM Europe that GM officials had drafted earlier this year.

They all envisage roughly 10,000 job cuts, representing a 20 percent reduction in the work force. They all set out to reduce structural costs by about 30 percent. In all of them, GM’s Antwerp, Belgium, plant seems to be at risk of closure.

In a recent interview, GM’s head of international operations, Executive Vice President Nick Reilly, said Opel had a cost problem. "The product’s good," he said. "Its biggest problem is financial. It has a very heavy emphasis in relatively high cost countries with a strong euro, and it needs to get that cost base down significantly."

Reilly, based in Shanghai, is taking over management of GM’s European operations on an interim basis until a replacement is found for Carl-Peter Forster, who is leaving the company.

Starting over

GM executives are making revisions now to their Opel restructuring plan, which the company will review this week.

GM will then approach European labor unions and governments with Opel facilities to discuss financial assistance to restructure Opel. GM estimates it needs 3 billion euros, or $4.5 billion — significantly less than what the German and other governments were prepared to offer Magna-Sberbank.

"We hope by the end of the first quarter to have a restructuring plan agreed with governments and unions," Smith said.

In contrast to the criticism of GM heard in Europe, Magna’s response to GM’s reversal has been mild.

"We’ll continue to support Opel and GM, and hope our business will continue to grow with them," Magna Co-Chief Executive Don Walker said Thursday on a quarterly results call.

For his part, Smith noted that Magna "is among GM’s best suppliers. We like them. We continue to be their largest customer."

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