September 10, 2009 7:35 pm

Opel stake sale to Magna fits new GM vision

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Since taking the helm at General Motors six months ago, Fritz Henderson has repeatedly said that the Detroit carmaker’s future as a force in the global motor industry will lie in a growing number of partnerships and alliances.

 
A sign painted by a demonstrator outside the Opel car plant in Bochum, Germany

A sign painted by a demonstrator outside the Opel car plant in Bochum, Germany

The proposed deal to sell a 55 per cent stake in Opel-Vauxhall to Magna, the Canadian car parts maker, and Russia’s Sberbank fits that vision.

But it also carries sizeable risks for GM, which is struggling to recover from a near-death experience that culminated in a court-supervised restructuring orchestrated by the Obama administration. The US and Canadian governments now own 72 per cent of the company.

GM said Thursday that Opel would remain “a fully integrated part of (its) global product-development organisation, allowing all parties to benefit from the exchange of technology and engineering resources”.

It noted that a new generation of electric vehicles “can only be brought to market in a joint effort”.

Nonetheless, with control of Opel slipping out of its hands, GM will have to loosen its tight grip on a core element of its research and development know-how.

Opel’s design and development centre in Rüsselsheim, where the German carmaker is based, is responsible for the development of energy-efficient small and compact cars, an increasingly important element of every major carmaker’s strategy.

A symbol of this technological prowess will be the new Astra compact car that Opel will unveil at the Frankfurt motor show, which starts next week.

Magna and the Russians will in the future be in the driver’s seat when it comes to decisions on major new development projects, giving GM less clout in the small and medium size segments that have become crucial in developed markets such as Europe and the US. Opel and Vauxhall, its UK operation, are GM’s strongholds in Europe. Together they employ about 55,000 people and sell around 1.5m cars each year, or about one-sixth of GM’s worldwide total.

The European operations posted a $1.6bn loss in 2008 on revenues of $34.4bn. In documents sent out to the bidders earlier this year, GM said it expected a loss before interest payments and tax of $3bn for 2009 for Opel and Vauxhall.

The decision to give Magna the nod will help GM management focus on its core business of selling cars in a tough US market.

In another step in its recovery process, the company is due to launch a campaign in the US this weekend aimed at rebuilding Americans’ trust in its vehicles and regaining some of the customers it has lost over the past two decades.

With the pending deal with Magna, GM managers have succeeded in their aim of clarifying Opel’s future before the Frankfurt show.

However, fallout from the sale is likely to continue as Germany and other European governments thrash out details of financial support.

German Chancellor Angela Merkel welcomed the deal on Thursday, saying that it showed that the “patience and single-mindedness” of her government had paid off.

But the reaction was less enthusiastic in the UK, where worries abound that Magna’s promise not to close any of GM’s four plants in Germany heighten the risk that one of the two Vauxhall plants in the UK could be sacrificed as part of a restructuring.

GM has bowed to intense pressure from the German government as well as Opel’s workforce, its works council and even some key managers in its decision to favour Magna over both a rival bid by RHJ International, the private-equity group, or indeed trying to hang on to Opel itself.

The German government held most of the cards after agreeing to back the restructuring of Opel with €4.5bn ($6.5bn) in loans and guarantees.

Berlin had made it clear that it would only stick to that agreement if GM backed the Magna bid.

Some senior Opel managers had also endorsed Magna’s bid, seeing a tie-up with the Canadians and Russians as a chance to regain some independence – 80 years after GM bought the German carmaker at the onset of the Great Depression.

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