Opel Watch: RHJ To Do the Whacking?

A few weeks ago, we cited Canada’s Globe and Mail, which wrote with great insight: “It’s entirely possible the Magna bid is in serious trouble. Indeed, the obstacles-political, economic, financial and industrial-are formidable and the negotiations are just starting . . . . Let’s just say that Magna’s bid for Opel is shaping up to be the most complicated auto deal of the year.”

That was quite an understatement.

For a while, the Magna deal sounded as good as done, except for a long list of unresolved issues, each explosive enough to blow the most solid deal. Then, new bidders were invited back. China’s BAIC made an attractive offer. The EU had a word to say. The Opel topic split the ruling coalition in Berlin that is engaged in bitter electioneering. In the meantime, GM, emboldened by its wash-and-rinse exit from bankruptcy, is getting more assertive and greedy.

Reuters now reports that “managers at GM may be hoping the U.S. Treasury—its largest shareholder—would back plans to sell a stake to RHJ, instead of to Magna.”

Moribund RHJ (their annual loss doubled last year to €1B), for long thought to be out of the game, handed in a new proposal. RHJ is reported to require €3.8B in (German) state aid as part of a deal for a majority stake in Opel, against an expected request of €4.5B from Magna. China‘s BAIC has asked for only €2.64B in aid.

The possible plan: The Belgian-based group could do the dirty work, find excuses to close surplus assembly plants and fire the workers, collect money from any government that wants to keep plants open. Then, RHJ will sell back its stake in Opel to GM. The reinvented company “wouldn’t have to get its hands dirty with measures it would have found politically difficult or impossible to implement itself,” as Reuters puts it.

The German unions share the same queasy feelings: “The suspicion is that RHJ as a financial investor would act the interest in GM and quickly flip it back to them,” said Armin Schild, a union leader who sits on Opel’s board.

GM may be emboldened, but they also may misread the political cues from Germany. The German government holds the majority of Opel in trust, in exchange for €1.5B bridge financing. Their biggest fear is that any state aid will flow back to Detroit. The pre-election political climate in Germany has turned anti-bailout.

On a national level, politicians from both sides go slow. The elections will most likely be decided by retired people who worry more about their pensions than about keeping factories open. The haggling between bidders gives Berlin time to do nothing. All other carmakers in Europe and their governments wouldn’t shed tears over Opel’s departure.

Worldwide production capacity is currently estimated at 90 million units per year. Only approximately 50 million units are currently sold. As much as governments may prop up their national auto industries for political reasons, ugly reality calls for closing down plants.

Only two months until the national elections in Germany. When they are over, and no deal is closed, Opel will be closed also.