Opel: Magna Looking Bad, BAIC Looking Good

Update: According to the speaker of the influential CDU Economics Council, there will be no decision about the future of Opel before the 27 September national elections. “Nothing will be decided before the elections, because nobody in the government wants to lose face because of this,” a council member said to Automobilwoche [sub]. The Opel Trustee figures that the latest date for a final, signed contract is mid September. If nothing is signed by then, the government money has run out and Opel is bankrupt.

The GM/Opel/Magna/Sberbank/GAZ group grope is in trouble. The writings are on all walls.

Opel is hemorrhaging more than €5 million per day, the Westdeutsche Allgemeine has learned. Opel spokesfolk said, it’s “only” €2.8 million. By mid September, the €1.5 billion bridge loan, underwritten by the German government, will be used up. There won’t be more money—that has been made as clear as can be. Time and money are running out. Why is Opel burning so much cash despite brisk sales? The Opel Tech Center has 7000 highly paid engineers. They work(ed) for all of GM. Bankrupt GM stopped all payments.

In the meantime, talks between GM and Magna hit one snag after another.

There are “disagreements over the use of GM’s technology and engineering designs,” as Bloomberg reports. That’s just scratching the surface.

Magna wants to make changes to the engineering designs of Opel models. GM is worried that would diminish their badge engineering benefits. Magna wants access to future technology such as fuel cells, hybrids and future GM models. GM doesn’t want to give them that.

Sberbank wants to sell its 35 percent holding in Opel the soon it’s prettied-up for sale, most likely to GAZ. This gives GM headaches. They don’t want to lose their foothold in Russia, and they don’t want to see Opel designs given to the Russian auto industry.

There are rumors from Berlin that Magna has buyer’s remorse. There are other auto manufacturers who told Magna to choose between being their parts supplier or their competitor.

In the meantime, the Russian auto market is collapsing. Automobilwoche [sub] cites a report by BDW automotive that predicts Russian production to shrink from 1.5 million units last year to just 700K units this year. This on top of added capacities by Volkswagen, Toyota and others.

In other words, a cluster carnal knowledge.

In light of the cracks that emerge in the Opel deal, Berlin is keeping all options open. As wide as possible.

“The memorandum of understanding is legally non-binding”, said Fred Irwin, chairman of the board of Germany’s Opel Trustee. Meaning: Come one, come all, place your bets and hopefully juicier bids. “We’re in very active negotiations with several potential partners including Magna, Beijing Auto and Ripplewood,” Chris Preuss, a GM Europe spokesman, said yesterday. “We have very strong interest in Opel from all the parties involved.” Some like Reuters believe this is just posturing, “rival suitors for GM’s Opel unit are likely just pawns in a high-stakes game of poker with favored bidder Magna.”

Bloomberg has a different opinion: GM “may sign non- binding agreements with Belgian and Chinese bidders for its Opel unit as a fallback to a proposed deal with Magna.” Other reports say that BAIC may place a binding offer by mid July. According to the Financial Times, “BAIC offered €660 million in equity for Opel and pledged not to cut any jobs for two years.” That’s more than the other bidders put on the table.

BAIC is improving its bid. Bloomberg says that BAIC “would require no government loans or guarantees for its purchase. Conversely, Magna’s plan calls for 4.5 billion Euros in loan guarantees from European governments.” In an environment where Germans are voting people out of office if they shower companies with bailout money, the BAIC deal may be to too good to pass up.