Conjecture as to the future for the core of GM Europe (Opel and Vauxhall) has been rife for many months. Since Detroit's announcement that it would divest of its European brands to concentrate on North America and China, both trade buyers and private equity have been clambering over initially SAAB, and latterly the big prize of Opel-Vauxhall.
Under different – more normal - economic and political circumstances the sale process may not have been as contorted as we've witnessed, the questions of constrained financial liquidity and election influenced 'real politik' bearing more heavily than would normally be the case.
After initial basic enquiries from various 'sniff-about' parties, the 2 ultimate prime candidates were of course presented in the shape of Magna International-Sberbank (the components and assembly company together with the Russian bank) and RHJ International (the industrial holdings company) vying head to head toward the finishing post.
As we now know, the winner proved to be Magna-Sberbank, the result seemingly born from the The Christian Democratic Union's political desire to be seen to be good country custodians so close the September 27th German General Election, and importantly maintain healthy political relations with Russia given its sizable bi-lateral energy trade agreements. Thus Angela Merkel has struck a decisive 'coup de grace' primarily for the CDU but arguably taken Opel out of its ongoing operational hiatus and given it new firm direction.
In the ideal of a commercially transactive perfect world – a far cry from today's environment - that intermission period would have stretched beyond the election date, so as to be based purely upon investment rational. However, government interventionism is the present reality in the auto-sector, and given that case, it seems that John Smith – GM's lead negotiator – tactically leveraged the moment. Previously announcing that GM might not sell Opel-Vauxhall after all and also possibly calling upon Detroit's Bob Lutz and Opel's Carl Peter Forster to pronounce opposing sale views – the latter staying 'on-side' with Merkel and the politicos. All to possibly add confusion to the mix and seek greater government assistance as the election date loomed.
As reported, Opel-Vauxhall is now shared as a 3-way entity between Magna-Sberbank with 55%, GM with 35% and the workforce with 10%. This allows the Canadian-Russian JV strategic control, GM still a major influence and value recipient – both in terms of negotiating operational transfer pricing of platforms and technology to NA and as latter-day stock beneficiary – and gives the workforce the fiscal incentive toward greater labour flexibility in helping re-shape the productivity competitiveness of the Opel-Vauxhall enterprise.
And of course that is key if the loss-making company is to resuscitate and prosper.
Magna offers a broad reach of mass-manufacturing competence across both low-value parts (such as metal stampings, metal castings, exterior and interior plastics) mid-value parts (such as powertrain ancilleries, transmission parts and fuel system parts) and high-value parts (such as electronic components and systems). And related to the latter is Magna's ambition to become a prime-mover regards 'alternative-drive' vehicles. This push for plug-in electric vehicles, as demonstrated by its acquisition of BluWav Systems LLC and its working with FMC on the all 2011 electric RV Focus programme.
[NB The true viability of that latter EV project - based seemingly on standard steel monocoque construction -raises immediate questions regards performance, cost and mass-market attraction terms. investment-auto-motives should hope to see Magna-Ford also work upon a 'baby-hybrid' system similar to that announced by SAAB on its 9-5; mating an 'electric launch/acceleration' motor with a conventional small capacity ICE unit to achieve both mass-market acceptance and provide 'unlimited' range. A rational intermediate step given the timeline to fully develop EV related lightweight structure/body, affordable light-mass battery technology and a sound EV business plan].
Beyond high-end R&D, Magna also recognises the constraints of the highly expert but limited span of Magna-Steyr's own R&D and vehicle development capabilities, so sees via Opel the opportunity for additional resource in this field that marry German expertise to that of Canadian, Austrian, S.Korean and Chinese locales.
Sberbank's involvement obviously provides access to additional funding for Opel – even with relatively constrained Russian banking liquidity. But critically it acts as an effectual broker and powerful point of entry to the lower cost Tier 1 & 2 & 3 levels of Russia's continually developing auto-industry. Sberbank itself unsurprisingly keen to maximise its central involvement in the full Russian value-chain. Done via GAZ cars, vans (inc the UK's LDV vans), large commercial vehicles, buses and auto-parts and its parent Russian Machines, itself under the umbrella of the commodity materials extractor and processor Basic Element group - of the famed Oleg Deripaska.
Such a conspicuously created set of alliance & conglomerate value-chain inter-relationships obviously suggests that a prime remit of the consortia is to effectively align capabilities, improve efficiencies, ride cross-sector business cycles and orchestrate multi-link transfer-pricing deals.
Fundamental to that is the engineering and related commercial deconstruction of the end-product - namely the car itself. Just as it has re-engineered the value chain, so Magna will hope to be able to re-engineer Opel vehicles themselves; undertaken via normative 'tear-down' whole vehicle, sub-systems and component parts appraisal for those areas Magna is unfamiliar with. Cost, weight and performance benchmarks will be acsertained, then the agenda set to equal or ideally better the measured parameters. But above all Russelsheim & elsewhere will be centred on cost-down above all else.
A certain level of re-engineering appraisal of Opel cars should have already taken place at GAZ given its ambitions to advance, but the Magna-Sberbank acquisition of Opel will now push that process far quicker and further. GM recognised this inevitability, hence the previous IPR dispute, something which now appears 'behind the scenes' notionally appeased.
Back to the high-level picture, and the question of Opel-Vauxhall production capacity re-alignment and associated plant and workforce fortunes is now at the forefront of newscasts.
The apparent sigh of relief in Germany is counter-pointed by a sigh of almost resignation elsewhere, especially so in the UK at Luton and Ellesmere Port. But should this be the case? Given the devalued British Pound (possibly to go further), the overtly strong Euro and the progressive flexible labour policies of the UK (to be undoubtedly maintained by a probable incoming Conservative government) the UK may have favourable tailwinds compared to its Spanish and Belgian counterparts, even if it cannot directly compete with CEE or Russian production centres, given the ability to 'ratchet-down' their local economies.
Interestingly, the Vauxhall-GAZ link could assist the Luton plant by putting commercial vehicle manufacture back into the hands of Vauxhall. As stated GAZ owns LDV, a company which boasts ownership of a relatively recently engineered multi-variant van platform – the Maxus. Presently Vauxhall assembles the Renault engineered Master & Trafic models under its own nameplates of Movano & Vivano. But this puts Vauxhall under the IPR and licensing mercy of Renault, a prime concern now given Renault's contractual 'walk-out' clause enacted if GM sells Vauxhall, as it has now effectively done. This perilous position is something Luton will want to escape not only to safeguard van production but also to better gain going forward given the good unit margins available on vans and the improving sales & revenues to be gained from a UK, European and Global economic upturn in due course which will heavily drive demand for LCVs nationally and internationally. Opel and Vauxhall will want to independently ride that wave, and could do so by 'appropriating' the LDV Maxus via GAZ (company sale or co-licensing deal) for its own use.
Such a favourable scenario, if tabled to the UK government's BIS office, would surely attract potential grant monies mentioned by Lord Mandleson. Such funds will not (rightly) compare to level of offering from Germany, Merkel and the CDU – offering a previous 1.5bn Euro bridging loan and 4.5bn future funding - instead monies forwarded should be in proportion to the required re-shaping of Vauxhall for future domestic stability and possibly even export competitiveness in niche (SVO) vehicles if it can prove itself and command a level of operational autonomy in the longer term.
For today and the short term however the battle for market share and 'share of mind' still looks harsh, especially so post national car-buying stimulus packages.
Efficiencies in the upstream value-chain through Magna are being strategically created, but now Magna-Sberbank must re-shape both the company itself to become a lean entity and critically critically re-consider the upstream portion of the value-chain – the products themselves, the retail channels and general environment and of course now with a new 'captive finance' house, balance the desire to push consumer lending with the need to maintain low default rates on new car loans so as to recycle the valuable liquidity back into the company and group for strategic integration and operational expansion.
And in relation to that is the question of how Opel, now effectively a Tier 0.5 entity can be leveraged to possibly become the centre of European client contract manufacture (inc Daimler, BMW & FIAT) and potentially regionally beyond.
Along with SAAB's and possibly Volvo's ownership change with BAIC and Geely, the new Opel-Vauxhall purveys a new era of substantial structural change in the European auto-sector.
