The negotiations process took longer than expected, but the board of General Motors has announced its support for Magna International and Sberbank to take a majority stake in GM Europe’s Opel/Vauxhall arm.
The sale will not be officially finalized until several key issues are resolved over the coming weeks, including gaining the written support of German labor unions. If all goes according to plan, the definite agreement will entail:
- Magna International/Sberbank – 55 percent ownership stake in the New Opel/Vauxhall
- GM – 35 percent minority ownership stake
- Opel/Vauxhall employees – 10 percent ownership stake
The Supervisory Board
When GM filed for bankruptcy protection in the U.S. in May 2009, a supervisory trust was set up to keep GM Europe from being swept into the bankruptcy proceedings. The trust is comprised of two voting representatives, one from GM and the other from Germany, as well non-voting chairman Fred Irwin, whose position is to act as arbiter between the two sides. The board was mandated to find a solution that met the interests of all stakeholders, putting more emphasis on the interests of the German government, German states with Opel facilities, and GM. The trust approved the sale on Thursday and recommended that state aid and financial guarantees provided by the German federal government and states should be used “exclusive for [the] new Opel,” said Irwin.
That was in response to concerns over some of the financial aid going to Russia by way of Sberbank, an equal partner to Magna in the deal. Irwin said that investments in Russia should be financed through other sources and that monitoring needs to be implemented so that “no German taxpayers’ money flows to Russia.”
The agreement will keep Opel and Vauxhall a fully integrated part of the GM global product development organization.
News of Magna International winning GM’s vote comes after rival investment firm RHJI raised “stakes” in the bidding war two weeks ago. The Brussels-based company informed GM that it would offer 300 million euros ($431 million) in cash for a 50.1 percent stake in GM Europe Opel/Vauxhall, an increase of 25 million euros from its first bid on July 20th.
Andrea Rosemann, a 46-year-old Opel employee who works on chassis construction in the technology development department at Opel’s headquarters in Ruesselsheim burst into a smile after hearing Magna was set to win the bid.
“I hope it’s right that Magna got it. Everything we heard about RHJ sounded like they were a locust merely interested in turning a quick profit,” she said.
Conditions And Timing
The deal comes with many conditions. Some are questioning whether Magna will agree to meet all of the requirements. If it would prefer some terms changed, the German government will most likely need to participate in discussing such changes. The upcoming presidential elections in Germany on September 27th have a chance to slow down the decision-making process if any changes are to be requested.
Any decision will be closely watched in Germany, where Opel employs about half of its 50,000 European auto workers across four plants.
Chancellor Angela Merkel, gunning for re-election, has supported the Magna bid for Opel all along and has promised 4.5 billion euros ($8.6 billion) in government guarantees if GM were to select the Magna/Sberbank offer. GM was concerned about possible intellectual property issues concerning Russian auto maker GAZ using the country’s cheap labor to produce (and undercut) the GM prices.
Under the terms of the deal, Opel would be prevented from selling cars in several key markets where it could compete with GM’s other brands. This moratorium would last for at least the next several years and includes markets such as United States, China, South Korea, and Canada. According to John Smith, the GM Group’s vice president of business development, Opel and GM technology will be available for use by Russia’s GAZ Group.
The Canadian OEM wants to tune Opel plant capacity by tapping into its own manufacturing and building expertise. The parts supplier forecasts high growth rates, particularly in Russia.
Sberbank, a partially Russian state-owned bank, is said to be working with GAZ, the leading Russian car maker, to bring production and certain use of Opel-GM technology to Russia.
Some are still holding out for the deal to fall through, expecting Magna/Sberbank to reject the terms and conditions of the deal. Given the fast-changing nature of recent Opel-GM chain-of-events, this could still be an option, although one that we wouldn’t hold our breath for. Even if certain conditions would not be accepted by Magna/Sberbank, such terms can always be renegotiated. The truth is that GM wants to desperately be rid of Opel while Magna and Sberbank want to begin turning a profit with the German auto maker.
At this point, Vauxhall sells rebadged Opels in the UK, under the Vauxhall moniker. The brand is strong in the UK, enjoying wide brand name recognition and a long history. According to the pending agreement, Magna promised to keep the Vauxhall factory at Ellesmere Port open until 2013, but could not guarantee any further production after that date.
As a result of the agreement, Opel/Vauxhall will remain a fully integrated part of GM’s global product development organization. This will allow GM, Opel/Vauxhall, and Magna/GAZ, to exchange technology and engineering resources. The agreement will also benefit all involved by providing access to important economies of scale – purchasing, engineering, and development activities will have the ability to be conducted more efficiently.
John Smith, who also served as the chief negotiator in the transaction, noted that GM already has several joint ventures around the world and believes the newly-formed partnership will offer the right balance in independence, innovation, and synergies.
Interestingly enough, GM as a company seems to be moving away from rear-wheel drive vehicles and toward front-wheel drive applications. GM Europe was the biggest contributor to FWD platform development for The General (Gamma, Epsilon, Theta). Whether the FWD know-how will be as effective as it once was under the partnership remains to be seen, but there is no reason why GM America can’t take over where GM Europe left off.
Moreover, many GM fans see the agreement as a death-knell to General Motors’ sales in Europe. Today, Opel makes up the majority of European sales while the Chevrolet brand lags far behind, often selling rebadged Daewoo or Suzuki models. With Opel gone and GM not receiving the majority revenue from Opel sales, it is asolutely imperative for GM to build up the Chevrolet and Cadillac brands in Europe. (expect to see many posts in the coming days about how we think GM should approach this).
Since certain Saturn models were simply rebadged Opels (Astra, Vue), speculation has been rampant that Magna would begin selling Opel vehicles under the Saturn brand in the Americas. As outlined in the conditions, Magna/Sberbank are prohibited from exporting vehicles to North America at lest for the next few years.
We will be discussing the Opel-GM agreement in more depth on today’s GM Authority podcast. Also, expect a lot more posts about the future of GM without Opel in the coming days (look under the New GM category).