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.
Magna got way over its head. They might lose all their business with the other OEM if they run Opel. If i was BMW, VW I would not cooperate with them anymore except on few special projects.
and why does Magna want “future” GM designs? I understand they want the access to all current models and technologies Opel has. But if GM develops something new after they sell Opel, how is that related to Magna?
that 5 million/day money pit might go up to 7 or 8 million/day once consumers get fed up and stop buying Opels. Right now Opel has super high sales (not sure why) despite bankruptcy and still loses money. what when people don’t want to buy from a bankrupt car maker anymore? Or cash-for-clunkers runs out?
Kaleun- VW is ahead of you on OEM business, and you are quite right. Rumor has it that necessary regular ongoing communications for work in progress shut down when the deal was announced.
Every Opel model is a VW fighter.
Losing VW due to mgt stupidity was nail in New Venture Gear coffin, from what I remember, causing them to tank and then Magna snapped them up. Old NVG hands think if that went better, it would have been NVG that did the buying and Syracuse would be less of a wasteland today.
I like Magna and hope they can back out intact.
I was in business school in 1991-1992 and in the strategy class we studied case after case where the correct observation of a company’s difficulty was “overcapacity” and solution was “reduce overcapacity (someone goes out of business).”
This is today’s picture, survivors are squabbling over scraps of excess production capacity which are shaded death gray on the chart, that needs to be shut down. Its painful to admit the jobs are gone, so gov. steps in and props it up.
Meanwhile infinite new cheaper capacity awaits patiently in Asia.
I read earlier today that Magna are planning to build three new plants in Russia, two near St.Petersberg and the other in Kaluga. At least one part of their org is going ahead full speed to expand in Russia.
I am still amazed that anybody in Germany can believe that the Magna consortium brings any sort of job security to their workers. But the Opel Works Council leader Klaus Franz is adamant that this is the very best deal that can be struck!
The deal seems to be dead, See update
I’m not surprised GM doesn’t want to turn over future designs to a would be competitor, and Magna’s other OEM customers would be crazy to cooperate closely with Magna as a supplier should Magna become a competitor.
I have a suspicion that GM doesn’t have a lot of advanced car engineering outside of Opel. So if Opel goes, the advanced car engineering goes. There may be a concentration of advanced truck engineering in the US but not cars. When GM needed a rear-drive platform, where did they go? Overseas. GM used to crank out rear-drive platforms (from Detroit) for years but have let that expertise move elsewhere (Opel/Germany, Holden/Australia). Where do they get their front-drive platforms? Daewoo/Korea.
“Where do they get their front-drive platforms? Daewoo/Korea ”
The Aveo comes from Daewoo, but that relationship doesn’t seem to be in jeopardy. The Impala and crossover platforms are mostly home grown. The Malibu sits on a joint US/European platform design.
As far as the rear wheel drive car platform, who cares? Except for niche markets, RWD is dead for passenger cars.
And the Cruze is a Daewoo platform. That’s their next greatest smaller car. (not from US). Daewoo was bought by GM out of a bankruptcy sale (pretty interesting turn of events).
But to compete in the marketplace they are going to need the proper platforms. If Cadillac is to be “standard of the world”, then they need a full size rear drive platform. That’s what the rest of the world is delivering. Lexus LS. BMW 7. Mercedes S. All rear drive. There appears to be no expertise in US to do this. This “niche” market is profitable. Imagine that, profits just what they need.
The Impala is old and probably going away – replaced by the Malibu.
If Magna are thrown out of the deal, could this open the door to BIAC? They have been in Russelsheim all week doing due diligence on Opel? They are offering cash and don’t want German gov’t bailout euros…
However, I can see that GM wouldn’t want another competitor in China who had access to the same tech. Is it time to open the door to Super-Sergio again?!
Producing cars overseas is risky.
It opens up the manufacturer to all sorts of extra (not often predictable) costs that can cause profits to dry up.
-As the cost of oil increases the cost of shipping the cars here skyrockets
-Exchange rates fluctuate
-Local laws or lack of them
-Extra taxes, duties, trade disputes
-Makes the car a more difficult sale
The Japanese companies moved production of their volume sellers to North America long ago, and the Koreans aren’t far behind them.
Cheap Chinese production is not the answer to GM’s problems, or anyones. It will only add to them.
The major risk is time. It takes weeks to sail over the ocean which means you have to produce your cars weeks before the client buys them which makes build-to-order impossible.
I believe Volvo even thought about using very fast ships to cross the Atlantic in days so they could do build-to-order.
Just theatre. The Russians have the money, want and the political connections to buy Opel and they are not competitors like China who could bury the other European car companies with their cost structure.
Officially Mercedes and BMW are against supporting Opel but they are not real competitors of Opel and if the markets stays this way hey may need support to, VW is but they don’t want to see a Chinese Opel.