Fiat and Magna are serious bidders for Opel and there are few other credible offers on the table, Global Insight analyst Tim Urquhart said in a research note on Friday.
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“It is possible that the German government and GM’s management may want to make a preliminary announcement about the winning bidder in advance of any move by Opel’s parent company to go into Chapter 11 administration,” he suggested.
“GM Europe’s president has told Auto Motor und Sport magazine that he assumes Opel would not be involved in this filing but it would appear unwise to rule anything out at this stage.
“The German government is currently looking to set up a trustee network which would protect Opel’s assets if GM does file for bankruptcy, with the government looking to help finalise a deal which would see the German banks provide EUR1.5bn in bridging finance until the deal with the new investor/partner is finalised. In addition the four German states where the four Opel plants are based could also provide up EUR750m in assistance.”
Looking at the bids, he said Fiat planned to create a global passenger car company out of the Fiat Group, Chrysler and Opel which would have combined sales volumes of up to 6m units a year as Fiat CEO Sergio Marchionne believes that 5m units a year is the minimum critical mass that all car companies will require to survive in the post-credit crunch global economy.
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By GlobalDataMarchionne’s non-cash Phoenix plan would save at least EUR1bn euro a year through shared platforms and powertrains, while the company also wants to use GM’s platforms for its own models. The new group would have a global production and sales footprint and combined revenues of EUR80bn (US$106.3bn).
Magna’s proposal with GAZ and Sberbank would use Opel’s spare production capacity to contract manufacture passenger cars for other carmakers, possibly using GM’s latest Epsilon 2 and Delta platforms. Magna would also look to achieve a sizeable slice of the Russian market through the involvement of GAZ and Sberbank. Reports claim that Magna would target selling 1m Opel cars a year in Russia with its Russian partners, Urquhart said.
Little was yet known about the RHJ bid but it was thought GM would be allowed to retain a sizeable stake in the business and thus participate in any upside and recovery in the future business.
RHJ already owns three automotive suppliers, Niles, HIT and Asahi Tec Corporation, which supply components such as switches, aluminium wheels, powertrains and chassis components.
“As was previously expected, Fiat and Magna have thrown their respective hats into the ring to be considered as potential partners/investors in Opel,” Urquhart said.
“The only surprise is the bid from the private equity arena through RHJ International. The enormous difficulties that Cerberus has experienced in its ownership of Chrysler, with the company now in administration less than two years after Cerberus took over, are likely to see GM and the German government treat an approach from a private equity investor with substantial caution.
“However, at least RHJ’s experience and properties in the automotive component sector means the company has experience of the industry as well as potential synergies to bring the table.
“It appears inevitable that the Magna and Fiat offers will be treated more seriously by both GM and the German government, but serious obstacles remain in the way of both bids.
“The Magna bid reportedly includes as part of its strategy an all-out assault on the Russian market. This would appear to depend on a rapid recovery in one of the markets worst hit by the global financial crisis, with sales for the first three months of 2009 down by 56.1%. The market is also a major market for GM’s Chevrolet brand and this part of the operation is not included in the Opel deal.
“In addition the GAZ Group, which is one of the consortium partners, is in serious financial trouble of its own.
“Fiat would appear to be in the hot seat as the most credible potential partner for Opel. The Italian automaker already shares platform (Corsa and Punto) and powertrain technology (small and medium diesels) with GM, and there are obvious synergies to be gained.
“However, the new company will have to have massively reduced production capacity and headcount, something which will be hard to achieve in either Germany or Italy, while GM also looks highly unlikely to cede its Latin American operation, which ideally Fiat would want as part of the deal.
“In addition, Fiat has said it has no intention of providing any cash for the alliance, instead depending on loan guarantees and bridging finance from government sources. Either way, despite the potentially imminent GM bankruptcy and the parlous state of Opel’s cash reserves, there appears to be a lot of work to complete before a deal is finalised, with government sources saying it could be until the fourth quarter of the year before Opel’s fate is sealed, despite a preliminary announcement expected next week.”
