When GM”s board was mulling its options for its European operation including Opel, there were rumors that it might simply choose to keep the company and ride out the car industry’s recession storm. The No.1 US auto company decided otherwise and Canadian car parts firm Magna (NYSE:MGA) became the lead candidate to buy Opel.
The best laid plans for Opel may be coming apart. One of the critical aspects of the Magna bid, which is backed by Russian partners, is that the German government is contributing $6.72 billion in aid to help Opel though its financial trouble. Germany does not seem to have offered comparable support to other bidders, and the EU has indicated that it may challenge the transaction on that basis.
The problems may mean that GM will get another bit at the apple. The Magna plan would have set up the ownership of Opel and UK sister company Vauxhall so that the Canadian company and its partners would own 65% of the firms, auto unions 10%, and GM 35%.
GM may be able to keep Opel without German’s support if its board is willing to risk some of the $49 billion that the US government has put into the American car company. GM is doing remarkably well in China but is still struggling with sales in the domestic market. It has, however, cut its operating costs to the bone, which means that its breakeven point is at the lowest level in decades.
GM does have an alternative to covering the losses of Opel on its own. Several Chinese car companies which are backed by the state have shown an interest in investing in auto assets outside The People’s Republic. SAIC, the largest auto firm on the mainland, is already a GM partner in a manufacturing joint venture in China. SAIC has access to capital that could allow GM to keep Opel without help from either the German or US governments.
Opel’s new owner may be its old one.
Douglas A. McIntyre
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