Sometimes, poker players have to know when to throw in their hand. Fiat was right to pull out of talks on Friday about taking over General Motors’ European arm, including Germany’s Opel and Vauxhall in the UK. The Italian company could not reasonably accede to a last-minute request to provide €300m emergency funding for Opel without access to the carmaker’s books.
Its rival to be Opel’s rescuer, Magna International, by contrast, seems ready to up the ante. The Canadian auto parts group appeared close late on Friday to an agreement with GM that the two groups could present to the German government. Should a deal be done, Opel would edge away from the brink. Magna, as preferred bidder, gets the keys to the data room to finalise a formal bid while €1.5bn of bridge financing from the German government keeps Opel afloat. GM goes into Chapter 11 in the US with Opel in effect ringfenced.
But, if Magna and its Russian partner Sberbank do indeed provide the €300m short-term funding for Opel at which Fiat balked, that only increases their risks. Magna has pledged similar overall job losses and capacity reduction to Fiat but has less scope for synergies. It plans to divert some Opel capacity into contract manufacturing for other carmakers, of which it has some experience. But demand for this, in an industry already suffering from overcapacity, is unclear. Vauxhall’s Luton and Opel’s Antwerp plants seem no safer under Magna than under Fiat.
It is uncertain, too, how long it will take for Opel to strengthen its position in Russia and for that market to recover sufficiently to provide a significant boost to Opel demand – a big part of Magna’s plans.
Germany and GM – perhaps because Magna offered it a bigger residual Opel stake plus a managerial role – both seemed to favour Magna’s offer. They may get their way. But Opel may be weaker as a result.
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