GM’s sale of Opel to Magna/Sberbank is being held up by the European Union, which is looking into whether the German government unfairly favored Magna’s bid. But while the interregnum plays out (the EU will decide by November 27th), GM has plenty of time to develop a case of seller’s remorse. After all, GM’s VP for Global Engineering Mark Reuss recently told Autoline After Hours that Opel is completely integrated into GM’s global product development, and that the relationship “won’t change.” Does that, as Business Week’s David Welch asked, mean GM will keep all of Opel’s development capacity while reducing loss exposure to 35 percent? Reuss had to change the subject, but it’s obviously not the case. With Daewoo under fire, GM would clearly prefer to keep Opel’s development capacity integrated, and keep its intellectual property out of the hands of Russian automakers. And with German newspapers reporting that GM’s board is considering a “plan B” to keep Opel within the GM fold, Opel’s workers are threatening to strike.
Ultimately though, it seems that the Magna deal will ultimately go through. The EU is not likely to block the deal for the simple reason that they won’t take over the German government’s interim financing or Magna deal-dependent $6.7b loan. Without this money, Opel would enter bankruptcy, leading to deep cuts in employment across Europe. Meanwhile, Magna has concluded a deal with Opel’s Spanish workers, continuing Magna’s back-away from the deep employment cuts that might have scuppered the deal.
Meanwhile, GM Europe’s Carl-Peter Forster tells Reuters that opposition to the Magna deal on GM’s board is “clearly below 50 percent.” And if you look at the collected arguments for keeping Opel, they are based in regret over giving up development capacity more than anything resembling a strong financial argument for keeping the troubled European division. But when all of the compromising is over, will there a strong financial argument for a Magna-owned Opel? IHS Global Insight’s Tim Urqhart thinks not:
We need to see some serious structural changes at Opel-Vauxhall. Every time Magna talks to the representatives at a plant it comes back with a huge compromise on job losses. At the start of the year there was a general consensus that four out of the 10 plants should go. Now that’s down to probably none, although the Antwerp, Belgium, plant is still under pressure
If Magna can’t restructure Opel to profitability, and if it can’t monetize the Opel intellectual property that GM is fighting to keep out of the Russian industry’s hands, it will be stuck with a losing proposition. It’s looking like it will be a good month before we really understand what Opel IP GM will be able to keep exclusive, and whether Magna-Opel will be a viable proposition. And until a deal is reached, the possibility of an Opel bankruptcy can not be ignored.