Stronach frozen out as GM kills Opel deal

Nov 04, 2009

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Business columnist

Frank Stronach's dream of becoming a leading world automaker died Tuesday when the board of General Motors Co. reversed itself and decided not to sell control of its European division, centred on the Opel and Vauxhall brands, to a consortium led by Stronach's auto-parts maker, Magna International Inc.

Stronach and his top executives were led on a merry chase for most of this year by a GM under pressure from Washington to drastically and rapidly shrink itself from what until just last year was the world's biggest automaker.

During a daylong meeting in Detroit, GM's board of directors decided to keep Opel after all and restructure it instead of selling to Magna and its partners, as GM had tentatively agreed in mid-September. CEO Fritz Henderson made it clear the company no longer felt pressured to sell off its European operations.

"While strained, the business environment in Europe has improved," Henderson said. "At the same time, GM's overall financial health and stability have improved significantly over the past few months, giving us confidence that the European business can be successfully restructured."

The always optimistic Stronach, who founded Magna and is still chairman, showed no disappointment Tuesday night.

"Business is business," he told the Star's Tony Van Alphen in an interview from Florida. "We saved a lot of money."

As part of the GM bailout by Washington, Ottawa and Queen's Park, GM agreed to sell or close four of its eight brands. But while GM emerged from a government-assisted bankruptcy earlier this year much faster than expected, dismantling a century-old colossus like GM, especially in the worst market for auto sales in decades, has proved to be extraordinarily difficult.

GM has killed its venerable Pontiac brand, as U.S. President Barack Obama demanded. But it has not yet sold its Hummer, Saab or Saturn brands, and has now taken its huge European division off the auction block after tentatively agreeing to a sale to Magna.

Respected U.S. auto dealer Roger Penske last month abruptly scrapped an agreement to take Saturn off GM's hands. And the tentative deals to sell Hummer and Saab to Chinese and Swedish buyers, respectively, have yet to close.

A consortium led by Stronach's Aurora-based Magna, the world's third-largest auto-parts maker, founded by Stronach in a Dupont St. garage in 1957, was to have bought the struggling Opel-Vauxhall operation with billions of dollars of financial assistance from the German and British governments. It was a chance to make history: Magna would be the first auto-parts maker to graduate to the status of full-fledged automaker.

Stronach's plan was to use Opel's technological prowess to revive the slow-selling lineup of Russian automaker OAO Gaz, controlled by Russian oligarch Oleg Deripaska, in a deal largely financed by Russian state bank Sberbank.

Under Stronach, 77, Opel would have maintained its factories in Germany and elsewhere in Europe. He also vowed to begin importing Opels to Canada this year, and start building Opels in Canada within two years.

GM has ultimately dashed those plans, deciding Opel has a "strategic importance" too great to let slip away.

That's true. Opel designs and technology were the backbone of the Saturn division. And even now GM is counting on Opel engineering for the new small cars it must bring to the North American market in order to become competitive, finally, in the fastest-growing segment of that key market.

After initially embracing an Opel sale to Magna, a GM emboldened by its exit from bankruptcy protection began signalling over the summer that it really didn't want to part with the division, one of Europe's largest automakers and the second-largest in Germany. And GM wanted to use Opel technology in its own two Russian joint ventures.

As a matter of pride alone, GM loathed the notion of giving up its status as a truly global automaker by parting with its huge European division — especially given that archrival Ford Motor Co. shows no signs of surrendering its formidable operations there.

GM's new board, appointed by Washington and with one member representing Canada and Ontario, directed the firm's top management to explore alternatives to a Magna sale.

A turning point was the German elections a few weeks ago in which Chancellor Angela Merkel was returned to power, but in a new coalition that displaced a centre-left ally with a centre-right one. Next to Stronach himself, Merkel had been the most steadfast champion of a Magna-Opel deal, which would have had significant German government backing.

But with the shift in political ideology in Berlin, and the pre-vote urgency about protecting jobs at Opel's four German factories now eased, it was understandable that GM's Detroit board kept finding ways to put off a final Magna deal until after that crucial vote.

The proposed Magna deal was never popular in global auto circles. The world has far too much auto-making capacity, and industry experts felt the best outcome for Opel would be for it to die. With Magna losing money in the worldwide auto downturn, taking on Opel-Vauxhall would have been a major burden, to say the least.

GM has suffered more than $6 billion (U.S.) in losses in Europe since 2000. In its best year this decade, Opel scratched out a mere $188 million in profits, making it a fiscal ruin of sorts long before the recession hit. With Berlin now less likely to be so generous in backstopping Opel, that will be a problem for GM and not Stronach.

Having seen his U.S. gaming and horse racing operation, Magna Entertainment Corp. (MEC), forced into bankruptcy earlier this year, Stronach might soon count his blessings at not taking on a vastly larger challenge that came much closer than MEC to being a bet-the-company proposition.

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