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10 Sep, 2009 12:23

GM decides on Magna – Sberbank bid for Opel

GM has announced that the future of its European arm, Germany based Opel, has been decided in favour of the joint bid by Canadian car parts producer Magna and Russia’s Sberbank.

An announcement released by GM states that key issues will be finalized over coming weeks, with a definitive agreement due within ‘a few weeks’ and closure to occur within ‘the next few months.’

It will see Magna/Sberbank purchase a 55 % stake in New Opel, with GM holding a 35% stake and employees with 10%. Fritz Henderson, GM President and CEO noted the decision was the result of intensive negotiations in recent weeks.

“The hard work over the past two weeks to clarify open issues and resolve details in the German financial package brought GM and its Board of Directors to recommend Magna/Sberbank.”

The agreement will see Opel/Vauxhall remain part of GM’s global product development organization, facilitating all parties benefiting from technological and engineering exchange.

The Magna – Sberbank bid, which was revised in mid August during a fierce bidding war with Belgium based buyout firm, RHJ, will see the combined bidders outlay an estimated 500 million euro for a combined 55% stake in the German carmaker, leaving GM and employees as shareholders.

The announcement came after the Opel council chief had stated that he thought it possible that workers would organize protests if the joint bid was not chosen, with the German Government having also made clear repeatedly that its preference was for the Canadian – Russian joint venture.

The German Government preference was crucial with Magna GM and the German Government working over the last 2 weeks to resolve intellectual property rights and financing issues. It had asked GM, then heading towards bankruptcy from which it has since emerged, to consider outside investors in Opel in order to raise financing, and to facilitate German Government financial support which has amounted to about $2.2 billion, and could be increased to $6.6 billion.

GM, which has run Opel since 1929, employs 25 thousand people in Germany, and operations in Britain, Belgium, Poland and Spain. It is expected that Magna and Sberbank will seek to cut 10,000 European, with 25% of those in Germany.

Hopes for a wind of change

While the Russian car market is one of the largest in Europe, the deal comes at a time of halted production lines and sluggish demand. In a Lada showroom, new models are on display but, according to the manager, they still suffer from old stereotypes.

“It’s no longer the old Zhigulis that drove on Russian streets decades ago. It’s a new generation of cars that are significantly cheaper than new foreign cars sold in Russia,” says Yury Tkachuk, the representative of the company.

Yet despite the price advantage, people are not rushing to buy these vehicles. The quality of Russian-made cars has long been a subject of bittersweet anecdotes. Not always modern and not always reliable, they’ve seen their market share shrink dramatically.

People like Alexander Ivanov have a soft spot for Russian autos. He has been collecting model cars since he was a boy. With several hundred models, his collection is not just big – it is also patriotic. Only domestically produced brands make it to Alexander’s shelves.

“Russian-made cars are closer to my heart. I’ve seen most of them on the streets, some of them I’ve even driven,” says the collector.

Yet, behind the wheel, Alexander’s preferences are not as patriotic. Having driven a Lada and a Volga, he has become a loyal supporter of foreign brands. “The best thing about foreign made cars is that they rarely break down. When I was driving a Lada, I had to repair it almost every day. After switching to a foreign car, I don’t even need to carry around tools.”

However, with the auto industry in Russia employing more than one million people, the government just can’t allow domestic brands to fail.

“Despite all the temptations, it's very important to save at least one Russian manufacturer who can build a car from beginning until end, and this is not only the economic aspect of the country's security but a military concern as well,” says Mikhail Podorozhansky, the editor-in-chief of the Autoreview magazine.

Many, like Evgeny Nadorshin from the Trust national bank, hope that the Magna-Sberbank consortium securing the Opel deal means that Russian manufacturers will have access to new technologies.

“We are buying a really advanced car maker. We’re buying it with a set of technologies which includes models, production lines, know-how and experience,” says Nadorshin, sharing his expectations.