Opel keeps hope alive

June 30, 2009

With General Motors in a Washington-guided bankruptcy and car makers around the world benefiting from government subsidies, politics has become firmly intertwined with the fate of the global auto industry. Even so, the deal reached in late May between General Motors and a group led by Magna International for GM’s European arm, Opel, smacked of trying too hard to come up with a politically convenient solution.

So the news that GM is now talking to other potential bidders is a welcome sign. Among the bidders are RHJ International, a publicly traded Belgian spinoff of the American private-equity firm Ripplewood Holdings, and Beijing Auto.

The German government had earlier favored the Magna proposal over one from Fiat because the bid stood to preserve more Opel jobs ahead of a September general election. And by having Russian partners, the bank Sberbank Rossii and GAZ, the carmaker, a Magna takeover promised to cement ties with an important market for Germany as well as Europe’s fastest-growing auto market.

But cutting costs and reducing capacity are the priorities for any automaker. And these Russian partners are far from ideal. GAZ is weighed down by $1 billion in debt. A 2006 GAZ acquisition, of British van maker LDV Group, has gone very badly, with LDV recently placed in administration.

With apparent snags in the talks with Magna, other bidders have now stepped up. There is now the chance of an improvement on the Magna group’s offer of 700 million euros for a 55 percent stake in Opel (GM would keep 35 percent, while Opel workers get 10 percent) — perhaps from Magna itself, if not the other potential bidders. And Fiat could reenter the fray.

The emergence of RHJ as a bidder is an intriguing prospect. Unlike the Russians or the Chinese, RHJ is presumably not motivated by improving and extending an existing auto empire, but sees some economic logic to taking a major stake.

Of course, RHJ may also be seeking subsidies or incentives from Berlin. While it is not the complete parts maker that Magna is, RHJ has controlling interests in the automotive companies Asahi Tec and Niles of Japan and Honsel International Technologies of Germany, as well as non-automotive interests in Columbia Music Entertainment and Phoenix Resort. And RHJ presents an interesting Wall Street connection: Ripplewood, which listed RHJ in 2005, was founded by Timothy Collins, who is a Lazard alumnus, as is Steve Rattner, who is overseeing the restructuring of the auto industry in the United States

Earlier today, Bernstein Research issued a report arguing that the dire forecasts for the European car market have been greatly overstated. The report is titled “Retaining the Audacity of Hope” — and that about sums up the present state of bidding for Opel.

(Editing by Martin Langfield)

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