Friday, July 17, 2009
Germany Pressures GM to Sell Opel to Magna
Germany's government sent a message to General Motors Co. on Wednesday: If GM sells its European car business to anyone other than Magna International Inc., then Germany might withdraw its offer of state aid.
The warning comes as German politicians grow increasingly nervous about who will win the auction for GM's European operations, centered on its Opel brand, a major employer in Germany and several other European countries.
Germany's strong hint could bolster Magna's chances, despite intense interest from other parties. Without government help, investors would struggle to finance the money-losing Opel and GM's Vauxhall in Britain.
Six weeks ago, Germany thought GM was on course to sell control of Opel to Magna, a Canadian-Austrian automotive supplier that has promised to keep Opel's German factories running. German politicians, facing national elections Sept. 27, pledged to support Magna's plan with €4.5 billion ($6.3 billion) in loan guarantees.
Since then, the divergent interests of Detroit and Berlin have become clear, and the auction is turning into a game of chicken between GM and Germany.
A newly confident GM, emerging faster than expected Friday from bankruptcy proceedings, is growing cool on Magna after failing for weeks to bridge differences with Magna over issues including access to GM technology and world markets.
GM's preliminary, nonbinding accord with Magna in late May was "a shotgun wedding" under political pressure from Germany, said one person close to GM.
Now, said people familiar with the matter, GM is closing in on an alternative agreement with RHJ International SA, a Brussels-based holding company whose largest shareholder is U.S. financier Timothy Collins, founder and head of buyout firm Ripplewood Holdings.
GM is confident that Germany wouldn't block a sale to RHJ, risking Opel's bankruptcy so close to the election, these people said.
However, GM can't complete a deal without Germany's aid and approval, German officials point out. And GM's controlling shareholder, the U.S. government, is unlikely to want to anger a major ally at a time when President Barack Obama is seeking more help from Chancellor Angela Merkel on international security issues, such as Afghanistan.
Against this political background, Magna is confident it can still secure the deal by reaching compromises with GM in coming days, said people close to the company. Magna is preparing to offer concessions on outstanding issues including the royalties it would have to pay GM to use its technology, these people said.
A third bidder, Beijing Automotive Industry Holding Co. of China, is also a contender, but the contest appears to be narrowing down to Magna and RHJ.
Taxpayer aid for a private-equity buyout of a storied German company would be hard for German politicians to swallow, or sell to voters. German leaders have blamed the global economic crisis on U.S. financial players, and some have in the past attacked private-equity firms as "locusts" preying on German industry.
Cerberus Capital Management LP's unsuccessful ownership of Chrysler LLC also doesn't inspire confidence in Germany that private-equity firms should run car makers.
Amid rising concern that GM might try to sell a majority Opel stake to RHJ, the government in Berlin stressed Wednesday that state aid can't be taken for granted.
German authorities agreed to give financial guarantees only if Magna wins Opel, a spokesman for Chancellor Merkel, Thomas Steg, told reporters. "Consequently, if GM were to reach a deal with another bidder, which is purely hypothetical, it would have to say what it expects from the government, and that would have to be negotiated," he said.
Mr. Steg said Germany always knew GM might choose another bidder over Magna, and stressed that Berlin's main requirement is a viable business plan for Opel.
German states that host Opel factories, and which are contributing to €1.5 billion of interim loans to keep Opel alive, also said Wednesday that an alternative buyer would have to renegotiate state aid.
China's BAIC is offering more cash and seeking less government aid than other bidders, but it has made clear that its main interest lies in transferring Opel technology to Chinese car plants. That is problematic for German politicians and unions who want to preserve German jobs, and for GM, which competes with BAIC in the Chinese market.
Some Opel workers fear GM's plan is to buy back Opel from RHJ in a few years. Opel staff want a new long-term owner. "Opting for RHJ would allow GM to keep everything as it is," Opel's worker representatives said in a protest flier.
However, Ms. Merkel's ruling conservatives are split over Magna's bid because of the potential cost to German taxpayers.
Economy minister Karl-Theodor zu Guttenberg is vocally opposed to risking more public money on Opel than necessary. On Wednesday, his officials met RHJ representatives to hear their latest plans for Opel, which would require €3.8 billion in state loan guarantees, less than Magna.
The warning comes as German politicians grow increasingly nervous about who will win the auction for GM's European operations, centered on its Opel brand, a major employer in Germany and several other European countries.
Germany's strong hint could bolster Magna's chances, despite intense interest from other parties. Without government help, investors would struggle to finance the money-losing Opel and GM's Vauxhall in Britain.
Six weeks ago, Germany thought GM was on course to sell control of Opel to Magna, a Canadian-Austrian automotive supplier that has promised to keep Opel's German factories running. German politicians, facing national elections Sept. 27, pledged to support Magna's plan with €4.5 billion ($6.3 billion) in loan guarantees.
Since then, the divergent interests of Detroit and Berlin have become clear, and the auction is turning into a game of chicken between GM and Germany.
A newly confident GM, emerging faster than expected Friday from bankruptcy proceedings, is growing cool on Magna after failing for weeks to bridge differences with Magna over issues including access to GM technology and world markets.
GM's preliminary, nonbinding accord with Magna in late May was "a shotgun wedding" under political pressure from Germany, said one person close to GM.
Now, said people familiar with the matter, GM is closing in on an alternative agreement with RHJ International SA, a Brussels-based holding company whose largest shareholder is U.S. financier Timothy Collins, founder and head of buyout firm Ripplewood Holdings.
GM is confident that Germany wouldn't block a sale to RHJ, risking Opel's bankruptcy so close to the election, these people said.
However, GM can't complete a deal without Germany's aid and approval, German officials point out. And GM's controlling shareholder, the U.S. government, is unlikely to want to anger a major ally at a time when President Barack Obama is seeking more help from Chancellor Angela Merkel on international security issues, such as Afghanistan.
Against this political background, Magna is confident it can still secure the deal by reaching compromises with GM in coming days, said people close to the company. Magna is preparing to offer concessions on outstanding issues including the royalties it would have to pay GM to use its technology, these people said.
A third bidder, Beijing Automotive Industry Holding Co. of China, is also a contender, but the contest appears to be narrowing down to Magna and RHJ.
Taxpayer aid for a private-equity buyout of a storied German company would be hard for German politicians to swallow, or sell to voters. German leaders have blamed the global economic crisis on U.S. financial players, and some have in the past attacked private-equity firms as "locusts" preying on German industry.
Cerberus Capital Management LP's unsuccessful ownership of Chrysler LLC also doesn't inspire confidence in Germany that private-equity firms should run car makers.
Amid rising concern that GM might try to sell a majority Opel stake to RHJ, the government in Berlin stressed Wednesday that state aid can't be taken for granted.
German authorities agreed to give financial guarantees only if Magna wins Opel, a spokesman for Chancellor Merkel, Thomas Steg, told reporters. "Consequently, if GM were to reach a deal with another bidder, which is purely hypothetical, it would have to say what it expects from the government, and that would have to be negotiated," he said.
Mr. Steg said Germany always knew GM might choose another bidder over Magna, and stressed that Berlin's main requirement is a viable business plan for Opel.
German states that host Opel factories, and which are contributing to €1.5 billion of interim loans to keep Opel alive, also said Wednesday that an alternative buyer would have to renegotiate state aid.
China's BAIC is offering more cash and seeking less government aid than other bidders, but it has made clear that its main interest lies in transferring Opel technology to Chinese car plants. That is problematic for German politicians and unions who want to preserve German jobs, and for GM, which competes with BAIC in the Chinese market.
Some Opel workers fear GM's plan is to buy back Opel from RHJ in a few years. Opel staff want a new long-term owner. "Opting for RHJ would allow GM to keep everything as it is," Opel's worker representatives said in a protest flier.
However, Ms. Merkel's ruling conservatives are split over Magna's bid because of the potential cost to German taxpayers.
Economy minister Karl-Theodor zu Guttenberg is vocally opposed to risking more public money on Opel than necessary. On Wednesday, his officials met RHJ representatives to hear their latest plans for Opel, which would require €3.8 billion in state loan guarantees, less than Magna.
GM Auction
General Motors' (GM) cash problems could give car buffs a rare chance to buy some of its most unusual vehicles at auction next week.
Some 200 of GM's one-off and historic models will be sold at the Barrett-Jackson Auction in Scottsdale, Ariz., to raise what amounts to pocket change for the struggling giant and to manage GM's fleet of historic and unique vehicles. The auction runs from Sunday through Jan. 18.
The cars for sale don't include the famous Motorama cars of the 1950s, according to Barrett-Jackson's list of cars to be offered.
GM's Heritage Center in Sterling Heights, Mich., displays about 200 of the automaker's 1,000 historic or special vehicles. Tom Freiman, center manager, forecasts the sale could generate less than $5 million. GM has been burning through $1 billion or more a month, and borrowed $4 billion last month from the federal government.
"We're trying to get the collection to the right size," Freiman said. "At the end of the day, I think we're going to end up with a better mix of heritage vehicles."
Ken Gross, a classic car collector and author, is glad to see some of GM's stash sold.
"They can't keep them all," Gross says. "If they keep what's significant and let other people have the rest, everybody benefits. Hobbyists get some nice cars, and GM gets a little money."
The vehicles for sale include cars built for use as pace cars for races or made for car shows, including high-performance vehicles made for the annual Specialty Equipment Market Association show. GM declined to give a complete list of vehicles to be auctioned, but they include:
•A white Cadillac convertible made for Pope John Paul II. The vehicle has a step-up, throne-like chair and platform that rises and falls via hydraulic lift.
It was blessed by the pope "but deemed unsafe by the security team," according to the auction house's website.
•A 1986 presidential limousine replica that has been in movies such as In the Line of Fire and The American President.
•The 1967 Pontiac GTO used in the action movie XXX.
•A 1925 House Car, an early version of a camper made before RVs became commercially available. It has mahogany trim and maple floors, and is built on a Chevrolet 1-ton truck chassis. No mention of fuel economy.
•The Buick Blackhawk, built to celebrate Buick's 100-year anniversary in 2003.
Some 200 of GM's one-off and historic models will be sold at the Barrett-Jackson Auction in Scottsdale, Ariz., to raise what amounts to pocket change for the struggling giant and to manage GM's fleet of historic and unique vehicles. The auction runs from Sunday through Jan. 18.
The cars for sale don't include the famous Motorama cars of the 1950s, according to Barrett-Jackson's list of cars to be offered.
GM's Heritage Center in Sterling Heights, Mich., displays about 200 of the automaker's 1,000 historic or special vehicles. Tom Freiman, center manager, forecasts the sale could generate less than $5 million. GM has been burning through $1 billion or more a month, and borrowed $4 billion last month from the federal government.
"We're trying to get the collection to the right size," Freiman said. "At the end of the day, I think we're going to end up with a better mix of heritage vehicles."
Ken Gross, a classic car collector and author, is glad to see some of GM's stash sold.
"They can't keep them all," Gross says. "If they keep what's significant and let other people have the rest, everybody benefits. Hobbyists get some nice cars, and GM gets a little money."
The vehicles for sale include cars built for use as pace cars for races or made for car shows, including high-performance vehicles made for the annual Specialty Equipment Market Association show. GM declined to give a complete list of vehicles to be auctioned, but they include:
•A white Cadillac convertible made for Pope John Paul II. The vehicle has a step-up, throne-like chair and platform that rises and falls via hydraulic lift.
It was blessed by the pope "but deemed unsafe by the security team," according to the auction house's website.
•A 1986 presidential limousine replica that has been in movies such as In the Line of Fire and The American President.
•The 1967 Pontiac GTO used in the action movie XXX.
•A 1925 House Car, an early version of a camper made before RVs became commercially available. It has mahogany trim and maple floors, and is built on a Chevrolet 1-ton truck chassis. No mention of fuel economy.
•The Buick Blackhawk, built to celebrate Buick's 100-year anniversary in 2003.
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