German Government Says Deal Could Be Reopened.
Chinese Could Be Strong Bidders, Fiat Might Try Again.
Just when you thought Opel/Vauxhall’s fate had been decided, cracks started to appear in the apparent consensus.
The logic behind Magna of Canada’s bid for GM Europe’s Opel was always a bit difficult to follow. New GM Europe was to be owned 35 per cent by Russian state bank Sberbank, with GM retaining 35 per cent, Magna with 20 per cent, and Opel/Vauxhall employees with the remaining 10 per cent. This was mainly bankrolled by Germany, with €1.5 billion of bridge financing, and loans and guarantees totally €4.5 billion; so far so good.
Magna apparently wanted to use spare capacity at Russia’s GAZ Group and launch a major assault on the Russian car market with Opel-derived models. Russia is certainly going to be the biggest car market in Europe one day. This was going to happen in 2009, until the recession intervened. But last year the biggest selling foreigner on the Russian market was GM’s Chevrolet, mainly selling cheap and cheerful small cars made in South Korea. So new GM Europe was going to use parts made in high cost Germany, to sell in Russia, against low cost cars made in South Korea by its biggest shareholder, GM?
Also, GM’s Russian plants, producing about 200,000 cars a year, were to be transferred to Opel. So the German government, in a bid to save mainly German Opel jobs, would have to take account of this capacity too.
Job one – ring fence Opel controversy
Job one for the German government was to ring fence the Opel controversy until after the federal elections in September 27. The unpalatable decisions on the future could be taken. That looked like being accomplished when Fiat withdrew, unwilling or unable to come up with €500 million in short-term financing provided by Magna and Sberbank. But as the behind-the-scenes due diligence negotiations started, reports out of Germany suggested that the deal might be derailed after all.
Karl-Theodor zu Guttenberg, Germany’s economics minister, said he was still in contact with other investors which included Fiat, but also included China’s Beijing Automotive Industry Corporation. Guttenberg had been against the Magna bid. Fiat is still believed to be interested.
Magna deal precarious
IHS Global Insight said Magna’s deal wasn’t cast in stone.
“It appears that the Magna deal is still somewhat precarious despite the signing of the memorandum of understanding, and it appears that if any bidder comes in with a substantially improved concrete offer the German government would be potentially receptive,” said Global Insight analyst Tim Urquhart.
“The German government must have some sort of agenda in making these comments as they will hardly help the process of Magna completing a smooth transaction to acquire Opel,” he said.
The surprising thing is that there were any investors seriously competing for GM Europe. Last year it lost $1.6 billion, and according to Global Insight, quoting a Financial Times story, is expected to lose another $3 billion in 2009. It hasn’t made serious profits for 10 years.
Magna hasn’t spelled out its plans for Opel-Vauxhall, although unions believe it sought cuts less savage than Fiat’s.
Would it carry through Opel’s new model programme? Would it seek to drop chunks of this and produce cars for other manufacturers? After all, Magna has much experience of this. Magna has said all 4 German Opel plants would remain, but would only say it would try and keep other plants in Antwerp, Belgium, and Vauxhall sites in England. With other big manufacturers fleeing high-cost Western Europe to set up factories in central and eastern Europe, that seemed a brave tactic.
Neil Winton – June 15, 2009
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