It was a long night again. Not as long as the disastrous Wednesday/Thursday meeting. And it didn’t end in invectives. At 2:15 in the morning, Finance Minister Peer Steinbrück stepped outside Chancellor Angela Merkel’s offices and reported: “I can tell you that a deal has been reached.” If you looked hard enough, you could see holy white smoke rising into Berlin’s night sky.
The German government got most of what they wanted. They got their partner, Magna; they got someone who brings expertise and money (provided by Russia’s Sberbank); and they got their trustee model. Until the last minute, GM’s new overlords in D.C. wanted to avoid that one like another bridge too far. They lost. This paved the way to bridge financing for Opel worth $2.1 billion. The lights will stay on in Rüsselsheim – for now.
Siegfried Wolf, co-chief executive of Magna, cautioned there are still details to be ironed out. A detail such as a contract with GM and its new owners. “In five weeks’ time we should have the formal signing of the contract,” Wolf said. Whoever did even the most simple M&A with a US entity knows that Wolf is an optimist. There’s an army of devils lurking in thickets of details. More “abrasive” negotiations are expected from a government-owned GM. That deal is far from closed.
Steinbrück said US Treasury representatives at the meeting endorsed the agreement. And he graciously abstained from making any new remarks about the qualifications of the Treasury reps. But Berlin is still grumpy about the old hat tactics of sending a good-for nothing delegate to humiliate the other side.
Berlin’s counter: Put a Heckler & Koch UMP to the other side’s hard heads and threaten Konkurs (bankruptcy) by Wednesday. “That created some movement on the American side,” reports Der Spiegel. Just to make sure that no more stupid junior-staffer-tricks are played, Chancellor Merkel had a transatlantic phone discussion with her American colleague Obama on Friday afternoon – principal to principal. And next time troop strength in Afghanistan is on the agenda, Berlin will send a descendant of Karl Valentin.
Friday evening’s discussions, led by Chancellor Angela Merkel, were “conflict laden,” Der Spiegel learned. Economy minister Freiherr von und zu Guttenberg (the Guttenberg bible carries the name of his family) favored a cleaner bankruptcy, recommended by his advisers and most German economists. He thought – still thinks – that the whole rescue operation is fallacious risky business. Von und zu even offered his resignation. Angela talked him out of it, and in the end, political expediency trumped sound reasoning. Why should it be different this time.
Under the new deal, GM and Russia’s Sberbank will — most likely, pending a written contract — hold 35 percent each in a new GM Europe, consisting mainly of Opel and Vauxhall. Magna will get 20 percent, the Opel workers will get 10. Russia’s automaker GAZ will get no shares—they will act as some kind of a strategic partner, at the pleasure or displeasure of Tovarich Putin.
The $2.1 billion won’t be the last note the German government will have to sign. For the next five years, Berlin has committed to loan guarantees worth $6.3 billion. That’s it . . . for the moment.
GM’s Carl-Peter Forster said that “currently” there are no additional monetary demands on the part of GM. How nice.
As for the plants and factories, Magna’s Wolf said that they want to keep all, and as many jobs as possible—in Germany. There was talk about job reductions of about 2,500, achievable through natural attrition or “the biological solution,” as the expression goes in Germany.
Not a word was said about the plants and jobs elsewhere in Europe. Probably part of the details that need to be ironed out. The Guardian is already worried that the Vauxhall van production could shift to Russia’s GAZ. But if Lord Mandelson puts pounds on the table instead of just pounding the table, the fix could be in on that one also. Gotta pay to play.
Compared to the $105 billion that have already been poured down various drains stateside (and the pouring continues, take from the poor, give to the rich), the sums involved in Europe are benign – for now.
Remember: All there is is a memo. They haven’t even begun writing a contract. Under the best of circumstances, getting a deal done with so many parties is hard enough. If nothing is signed, sealed and delivered by 9/27/2009 – election day in Germany – Opel is dead.
Let’s get past all the paperwork so we can start laying off and trimming down Opel. Any new deal is going to be laden with bad news for the Unions.
Perhaps, just perhaps, Magna should think twice, thrice even, before trying to wrest control of the Saturn dealership network stateside + Canada.
For one thing, what are the odds that Opel will survive 9/27/09? 50%? 75%? 35%? Let’s be honest here – the Russians are only slightly more reliable as partners than are the Chinese. What’s you preference, sir? Cognac with arsenic, or Champagne with stricknine?
For another thing, aren’t GM discontinuing production of all Saturn vehicles pretty much like within the next 30 days? Methinks they are planning that, and besides which; just which GM plants building Saturns are even building Saturns right now anyway?
For a third thing, even IF Opel survives, there is virtually a ZERO percent chance that Opel AG can have US spec cars ready for Saturn within 18 months – other than the slow selling Astra. You can’t have a US distribution network selling one subcompact car which has proven to not sell well already, coming from a high-wage area at a time when the value of the US dollar is sinking sinking sinking…. sort of reminiscent of a certain Titanic.
The “other plans” for rebadging Mitsubishi vehicles for sale by Saturn dealers is a no-go for Magna, because I believe that is another bidder for Saturn which has signed on that idea.
Even assuming Mitsubishi would be willing to sign on with Magna to supply cars for 18 – 24 months, I’m pretty certain the other best & brightest TTACers can well see the nightmare of parts and service which would ensue under that scenario…
OK putting on an optimistic tone; perhaps Magna can pull a rabbit out of a hat and the new Vectra replacement is already engineered for US sale.
Perhaps GAZ would be manufacturing them for sale in North America in Russia, with low cost labor, which would allow price competitiveness with Mexican manufactured Ford Fusions, for example.
Perhaps GM, owning 35% of Opel, would be willing to supply Saturn with Aura cars for a further 18 months on contract. (Saturn would pretty much have to have a Camcord competitor to even have a chance of survival, honestly. They could manage without an SUV but the dealers, stuck in their ways, would wail and gnash their teeth).
Perhaps Suzuki’s + GM’s Canadian joint venture, CAMI, would be wiling to supply Pontiac Torrent SUV’s rebadged as a Saturn on contract (Chinese built V6’s, alas).
Perhaps just perhaps Toyota’s + GM’s California joint venture, NUMMI, would be willing to supply Pontiac Vibe wagons rebadged as Saturns on contract (at least the dang things are reliable).
Too many loose ends, if you ask me.
As for Opel and Vauxhall, bring out the Lillies.
Put another way; Europeans and British folk are just as likely to look at the probable residuals (i.e. depreciation) of a potential “Borgward” brand and simply walk away.
Especially in Britain, where (when I lived there 16 years ago) the vast majority of new car sales were to companies for “company cars” provided in leiu of higher wages (as a tax dodge). Companies’ bean counters are more rational about losses in depreciation than human beings are when making their own choices on cars, generally; this tells me Vauxhall will die on the vine.
Especially given that virtually all Vauxhall AUTOMOBILES are actually manufactured in Spain, Germany, Belgium and Poland. (Myy 2006-2007 World of Cars book states that only the Astra was built in the UK along with other plants in the EU). Yep, I believe there is a mid-range van plant, too.
Which brings to mind ANOTHER rather sticky wicket, old chaps. The EU rules are fairly clear that one “state” shall not do things like close out factories in other “states” to save jobs in the first. Put another way, the buyers of Opel (and the German “state” itself) will face court fights and EU sanctions by Poland, Belgium and Spain, and possibly the UK too, if job losses are announced for Opel – and none of them are in GERMANY. Or am I wrong here, Bertel?
No, you aren’t, menno.
The first EU-wise rumblings (from Belgium) were registered many hours before the deal was announced.
What I don’t understand are the many words about Magna & Saturn. Magna had made it clear a while ago that they are “not in discussions” with GM about a purchase of Saturn. If anyone comes to Magna for contract production, that’s a different story. They are in the contract production business. Which may suffer a bit, now that they have their hands on Opel.
Quote Bertel Schmitt: “Under the new deal, GM and Russia’s Sberbank will hold 35 percent each in a new GM Europe, consisting mainly of Opel and Vauxhall. Magna will get 20 percent, the Opel workers will get 10. Russia’s automaker GAZ will get no shares”
Am I missing something here? Assuming what Bertel wrote above is true, then I don’t see much ‘change’ here. I do not pretend to understand EU business rules, so please correct me if I’m wrong but I don’t see this as Magna doing anything other than assuring themselves as most-favored-supplier status….which they kinda sorta already are. I don’t see this as Magna buying Opel in any way. If one of my suppliers invested 20% into my business and I still held 35% and my banker held 35%, then from my perspective, I’m still in charge, or in this case, GM-Opel is still running the show.
If GM has 35% and a bank has 35% and Magna has 20% , then GM will still be doing whatever it likes with Opel. The bank may have some influence, but I seriously doubt if the bank or Magna will be changing any of the middle or lower level management and so long as GM-Opel still holds sway over career paths and day-to-day decisions then GM-Opel will still be running the show. Maybe they’ll shake up the board a little bit, put some of their own people at the top, but it seems like not much has changed except for a few chairs in the boardroom and whose money it is in the kitty.
However…it will make for some very interesting and tense supplier contract negotiations…I’d love to be a fly on the wall for the next major Magna supplier contract to come up with Opel or even GM NA…
Stu: Magna & Sperbank supposedly are buddies. Together, they hold 55%. 65% with the unions. Sperbank isn’t GM’s bank, God help them. Sperbank is a subsidiary of Russia’s central bank.
GM’s 35% give it a controlling minority in the supervisory board – it can veto anything it doesn’t like. It will be interesting.
As mentioned above, the final contracts aren’t written, and we do not know how the share holdings have changed in the past few nights. Probably not a lot.
It will be interesting to see who will be on the executive board of directors which directs the day to day affairs, the true officers of the ship. In a German company, the executive board of directors (“Vorstand”) is different from the supervisory board (“Aufsichtsrat”) Also, the supervisory board of a company that size will have half of its seats filled by the unions. Which makes it even more interesting.
Many see a Russia-Magna-Union alliance against GM. Paid, aided and abetted by a German government that has a long memory for blackmail attempts.
Interesting: Hans Demant, CEO of Opel, pretty much went AWOL in the last weeks, while Opel works council chief Klaus Franz gives daily press conferences and acts as the guy in charge. Quite tellingly, Demant’s last public appearance was in an oldtimer race.
Stay tuned.
Thanks Bertel. I did not realize that Sberbank and Magna were cozy-that totally re-frames this deal.
With that said, Magna will not be making much profit off of selling Opels…they do however, make money off of selling car parts and while they may hold the Opel-gun to GM’s head, GM can hold the enticement of HUGE contracts throughout the world-gun to Magna’s head. Not that Magna needs GM contracts to survive, but even now, GM is still one of the world’s largest purchasers of parts from suppliers. The other thing to consider is that several times in the past Magna has looked into becoming an automaker on their own and nearly universally, their OEM customers said that if Magna did that then the OEMs would soon after pull their business from Magna for reasons of preserving their intellectual property…why give the new kid on the block all of your good ideas eh?!?! We shall see if this deal sparks some business contractions for Magna.
You’re right-it will be very interesting. Thanks again for your insight.
Joint platform development and purchasing between GM-US and GM-Europe can be expected to continue then, yes? It seems like the purpose of this whole dance was to give the German government political cover for its bailout of GM-Europe. The German government doesn’t want to be seen as bailing out a US company, and it doesn’t want to let German factories close. So, they have to put up a chunk of change and need a bunch of window dressing to hide behind as they do so.
Russia gets to use some of its natural gas income to buy influence in Germany, Magna gets to pretend it has grown up from being just a supplier into being a full fledged auto manufacturer, GM gets to keep sharing costs between its US, Asia and European operations and Germany gets to throw some money on the bonfire in return for promises of keeping factories open. Am I missing something here?
That 35% isn’t held by GM’s bank but by Magna’s bank. that makes a big difference.
Stu: Yes, the OEM relationships (and the contract manufacture deals) of Magna are at stake, and it is a big gamble. If you want to know what cars manufacturers build 5 years down the road, become a big parts and components supplier – you will be part of the development process. These relationships could get strained with Magna becoming a competitor.
So lots of political posturing and the Junior Treasury guy, that was thrown under the bus, was the scape goat. Thus the German politicians could look tough to there voters. Terrific!
It looks like the Chinese didn’t show up at all.
I think I will skip all that intregue until one shows up at my local dealer. I wonder if the Chinese knew they were supposed to be buying Opel.
Bertel, Am I correct in assuming that GM’s European Chevrolet operations (mostly rebranded Daewoos) are not involved in this deal? They are part of GME, though. The Chevys have been selling pretty well in some of the eastern European markets.
Paul: Honestly, I have no idea. The British press talks about Magna taking over General Motors Europe, whereas their continental colleagues talk about an Opel/Magna deal.
According to the FT “Germany reached a deal with Canadian auto parts group Magna and its Russian banking partner Sberbank to take over most of GM Europe, which includes German-based Opel and British-based Vauxhall brands.” I hazard a guess that currently comes closest to the truth.
There is very little additional detail. Mostly because a lot has yet to be hammered out.
Bertel, I’m guessing not, because it doesn’t involve jobs in the EU. Can’t see Germany’s money going to Korea any more happily than to the US.
It is odd that much of the press is reporting things with such a crazy spin: http://finance.yahoo.com/news/Merkel-greets-Magna-plan-to-apf-15390969.html?.v=14 “General Motors Corp. will sell most of its Opel unit and other European assets to Canada’s Magna International Inc. in a deal German Chancellor Angela Merkel said Saturday would protect the assets from GM’s likely bankruptcy.”
But … GM is selling a minority interest to Magna, and Magna isn’t putting up a penny! All the posturing by the Germans about being upset with whoever the US Treasury sent over is just a bunch of German hot air.
To borrow, spindle, fold and mutilate a phrase from Texas:
“Remember the Daimler-Chrysler Merger!”
IIRC the German unions had a big beef with GM when last year it calculated the losses at GM EU they included GM loss making European cars sold in America but didn’t include the profit of GMDAT cars sold in Europe.
I doubt that Daewoo Europe is part of General Motors Europe.
John Horner:
But … GM is selling a minority interest to Magna, and Magna isn’t putting up a penny!
That was Fiat.
According to FAZ Stronach will start transferring money on Tuesday to keep the lights on at Opel. He’ll do that without formal assurances from the government. A Russian bank and an Austrian/Canadian entrepreneur who sits on a pile of cash can wire money quicker than the German government.
FAZ has a nice comment: The true owners of Opel are the U.S. government (majority owner of GM,) the Russian government (majority owner of Sperbank,) Stronach and the unions. FAZ: “In cold war times, Opel would have been celebrated as the auto maker of world peace.” There’s more conspiracy fodder in that than in a Daimler-Chrysler rehash, which doesn’t fit the situation at all. Dumb Daimler paid $36b for Chrysler, and then $650m to Cerberus to take Chrysler off Daimler’s hands. Let’s not even mention the how-much-does-it-take-to-make-it-go-away paid to Kerkorian.
If nothing is signed, sealed and delivered by 9/27/2009 – election day in Germany – Opel is dead.
If the Germans have any brains they set it up to BK Opel once it has no influence on the elections.
They have to know that doing business with this administration is like doing business with a inner city gang.
Anyone that puts a dime into this deal is going to lose it.
Is Stronach tight enough with the Russians that they will cut gas for him next winter if he gets screwed?
Sounds like he might be the fall guy here.
Years ago, I worked for Magna, definitely an interesting group. Cocky doesn’t even begin to describe the organization.
I also know they had built a car years ago, and at least one OEM told them to decide, either be our supplier or be our competitor, but you will not be both.
Stronach can’t decide if he wants to be a super suppler, OEM, or horse racing mogul. I expect that will be his undoing.
I know Penske is trying to buy Saturn. But I wasn’t wrong that Magna also was rumored to be interested, and this was not very long ago either.
But then again, like politics, two weeks is an awful long time in the crazy current insanity known as the auto business (or should it be the autopocolypse business?)
http://www.thedeal.com/corporatedealmaker/2009/05/magna_international_kicking_sa.php
OK Bertel, I just found it – I stand corrected. Looks like Magna denied the interest in Saturn the very next day – May 20th.
http://ca.news.finance.yahoo.com/s/20052009/6/finance-magna-says-talks-gm-buy-saturn.html
Doesn’t mean Opel won’t supply some product to Saturn if it survives, of course.
Here’s another wild-card idea. The Belgian plant where Saturn Astra cars are built may be pushed off the cliff and jobs centered in Germany instead – if so, I wonder if whoever buys Saturn would be interested in snagging a fully functional factory already building small Saturns?
Probably a terrible idea; first, the Astra isn’t selling well in the US and next, the dollar is collapsing. Nobody wants a tiny Saturn for $25,000….
Thanks for setting me straight Bertel, I never got past second year high school German :(.
I’m still wondering how Magna’s other customers are going to feel about Magna now competing with them.
Stronach has accomplished amazing things, but not everything he touches turns to gold. In 2000 Magna International spun off Magna Entertainment to run his horse racetrack and gambling empire. In March of this year, Magna Entertainment itself filed for Chapter 11 bankruptcy and looks likely to be liquidated.
http://www.financialpost.com/story.html?id=1357163
Hippo:
If the Germans have any brains they set it up to BK Opel once it has no influence on the elections.
Trust me, they will. One way or the other.
VUZG (von und zu Guttenberg) is already being celebrated in his conservative circles as the hero of free enterprise, and for making a valiant attempt to protect the tax payer’s money. He’s now free to say: “I told you so.”
My hunch is the lights will be kept on until September.
After the elections are over, the unpopular, but necessary decisions have to be made.
If a CDU/FDP coalition emerges, it’s lights out at Opel, and the BK administrator will sell the pieces to whoever wants them.
If a more left wing coalition takes power, the deal will sputter ahead and Opel will eventually die of natural causes. The track record of the SPD in keeping companies alive ain’t that great.
The next Generation Astra will not be built in the Belgian plant. At least according to one of the Belgian members on the Astra forum of SaturnFans. Some other vehicle is already planned.
He works in the factory. It seems they were grateful for the factory even staying open to build anything.
Pictures of the next Astra are already hitting the Internet. But if you like the old one better, I think there are a few 08s still around…..
Hello, menno!
What did you mean by “Let’s be honest here – the Russians are only slightly more reliable as partners than are the Chinese …”
Surely, not the fact that presumably unreliable Russian partners were keeping the oil and gas supplies to the Western Europe uninterrupted even during the Cold War when Ronald Regan had called the former Soviet Union an “Evil Empire”? BTW, China has proved to be the most reliable and healthy part of the US economy.
Yet, I do not believe that your benchmark for the reliable partnership is the current Opel owner, GMC? If so, ask the GM dealers and suppliers who will be unceremoniously cut loose after GMC will file for the Chapter 11 next Monday.
Therefore, before posting such juvenile comments, try to read history books and turn off the Fox channel.
“Hippo:
If the Germans have any brains they set it up to BK Opel once it has no influence on the elections.
Trust me, they will. One way or the other.”
True – it is their only choice.
Germany cannot afford to pump billions into auto companies as the EU democratic socialist system is stretched to limits. BO is able to deal on 78 years of free market enterprise to spend the USA into oblivion.