Magna's Risky Plan: What Opel's Suitors Really Want
The future of troubled carmaker Opel has become a key political issue in Germany as election campaigning begins. Many politicians favor a proposal by the Austrian-Canadian auto parts supplier Magna, but the plan involves massive risks.
When senior officals from Germany's state and national government met at the Chancellery in Berlin last week to discuss rescuing the troubled German carmaker Opel, the words of President Horst Köhler were still ringing in their ears. He had spoken about the "opportunities of this crisis" and of taking "pride in our achievements." Köhler had also urged Germans to "keep up their spirits."
Köhler made those comments last Friday afternoon at a celebration to mark the 60th anniversary of the Federal Republic of Germany. Less than three hours later, Chancellor Angela Merkel, several of her cabinet ministers and the governors of the states of Hesse, Rhineland-Palatinate and North Rhine-Westphalia were sitting around the oval conference table in a small meeting room on the eighth floor of the Chancellery. They tried to apply the tone of the president's speech to a concrete scenario: the rescue of the ailing Rüsselsheim-based automaker Opel.
At that point, three proposals were on the table: a restructuring plan from Italy's Fiat Group, as well as plans from financial investor RHJ International and Austrian-Canadian auto parts supplier Magna. The more than 100 pages of documents included dozens of lists, tables and graphs. Although the official purpose of the meeting was to discuss which proposal was the most favorable for Opel, the majority of attendees had already made up their minds.
In the end, two dissenters voiced their objections. To the chancellor's annoyance, they were members of her own party, the conservative Christian Democratic Union (CDU), and its Bavarian sister party, the Christian Social Union (CSU). The CDU's Jürgen Rüttgers, who is governor of North Rhine-Westphalia, called the plan "unacceptable," and he was joined by Economics Minister Karl-Theodor zu Guttenberg, who belongs to the CSU. "We must make sure," Guttenberg told the group at the end of the meeting, "that we keep the risk to taxpayers as low as possible."
The poker game over the sickly automaker is entering a new round. As it does so, it is gradually turning into a spectacle that could be used for election campaigning. Nevertheless, after one Opel bailout plan after another was discarded in the last six months, politicians and business leaders have at least reached an important preliminary decision. The American and German governments, as well as Opel parent General Motors (GM), prefer Magna -- to the delight of the Opel management and workforce, who have long advocated the bid by the Austrian-Canadian parts supplier and its Russian backers. Many who supported the Magna candidacy early on are probably feeling triumphant already. They include the unions and the center-left Social Democratic Party (SPD) -- including, most prominently, Steinmeier, who is his party's chancellor candidate for September's national elections -- as well as influential CDU/CSU governors. But anyone who believes that the Magna plans guarantee Opel's future is rejoicing too soon.
A takeover by the parts supplier could lead to years of anxiety. The consortium's proposal burdens the government with billions in new financial risks, carries significant industrial risks and is no guarantee that thousands of jobs at Opel's four German plants will not be lost.
The preliminary decision also raises questions politically. It strengthens economic ties with Russia and gives the cold shoulder to fellow European Union member Italy. It makes the continued existence of a major German employer dependent on the financial strength of a Russian state-owned bank. And, finally, it creates a precedent for growing government intervention in the economy. If the government rescues Opel, it will hardly be able to turn away other supplicants.
Too Good to Be True?
The federal and state governments' clear support for Magna comes as a surprise to many. Until a few weeks ago, the company was virtually unknown except among industry insiders, even though virtually every car that is produced contains its parts. Until recently, parts suppliers as a whole were relegated to the shadows in the glittering worlds of the Porsche clan and Fiat's Agnelli dynasty.
The ascent of the company and its founder, Frank Stronach, is probably one of the most unusual success stories in the postwar era. In 1954, Stronach, a toolmaker by profession, emigrated to Canada, where he kept his head above water for three years with casual work.
He eventually opened an auto repair shop near Toronto. Stronach's business model was to promise his customers that he could perform any job -- and would charge them nothing if he failed. Using this business model as his stock-in-trade, he built his small repair shop into a steadily growing contract manufacturer for the auto industry.
Today it employs 70,000 people in 240 locations. In addition to glass and tires, Magna produces all manner of car-related products, including even entire automobile series, such as the BMW X3, the Mercedes G Class and the Aston Martin Rapide.
And now Stronach is ready to take the jump into the big league. By acquiring Opel, Magna, together with its joint venture partner, Russia's Sberbank, would become Europe's biggest carmaker. The plan Stronach has submitted is certainly self-confident, but much of it sounds almost too good to be true. "NewOpel will be an independent, strong company and an attractive joint venture partner," Magna promises in its 78-page proposal. "Based on our experience, we have identified significant additional potential."
Its hopes are based primarily on three projects. In the medium term, the new company would launch an environmentally friendly small car "to tap additional market potential." Magna and Sberbank also have strong expectations for the Russian market, where they expect to capture a 22 percent market share, equivalent to 700,000 new cars a year. In addition, Opel workers would increasingly be assembling the cars of other manufacturers in the future.
- Part 1: What Opel's Suitors Really Want
- Part 2: Courting the Germans
© DER SPIEGEL 22/2009
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