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GM negotiator slams Opel bidder’s Russian connection

By Paul Taylor
August 6, 2009

The GM blogger is at it again. John Smith, General Motors’ group vice-president and chief negotiator for the sale of its stake in Opel/Vauxhall, lays into the bid by Canadian-Austrian car parts maker Magna – especially the Russian Connection – in his latest update on the state of the talks.

He also pours cold water on happy talk from German politicians of an early decision in favour of Magna, backed by the German authorities, rather than rival Belgium-based financial investor RHJ International, which clearly still has GM’s preference.

What is most striking about Smith’s blog post is the withering tone of his comments on Magna’s partnership with Russia’s Sberbank in a joint bid, and of the opacity surrounding the Russian leg of the proposed deal. Here are some choice morsels:

As noted in my prior blog post, the Magna proposal is more complex, owing to the inclusion of Russia and a third, Russian-based investor.  We started the week with about 30 issues to resolve, including NewOpel involvement with Chevrolet in Russia, intellectual property transfer rights in Russia, advanced technology access, product development responsibilities, minority shareholder rights and other items.

I can report some progress, resolving perhaps one-third of the issues during a first day of talks.  However, the difficulties of getting to ‘yes’ with three parties in the room were very much in evidence yesterday. Little progress was made in whittling down the outstanding issues, in part reflecting the return of some issues that we previously considered to be resolved.

That suggests that Kremlin-backed Sberbank has resurrected previous demands for de facto control of NewOpel’s Russian operations.  Smith then goes further and expounds his suspicion that the Russian Connection is a way of sucking Opel’s high technology in engines and transmissions away to Russia.

One key point for GM is intellectual property, and this transaction should not become a pipeline, shipping valuable intellectual property to destinations unknown.

The post seems to be an effort to undermine the main arguments of Magna’s supporters in the German federal and state governments, Opel’s workforce and the Social Democratic Party. Contrary to their contention, he says, the offers are substantially similar in terms of product, manufacturing and purchasing plans. RHJ’s would be easier to execute and require less government money, and both bidders have the same global market access. Anyway, Smith adds, Opel has always done best when it concentrated on its home market. He also notes that an (unpublished) evaluation by the German government’s advisers, Lazard, left “a strong impression that the RHJI bid was superior”.

Finally, he seeks to demolish the argument that the Magna bid is superior because it would give Opel greater independence from GM.

In truth, Opel needs a close connection to a high-volume, global automobile company to take full advantage of related economies of scale as it will not survive for very long on its own.  One has to look only as far as the new Insignia and forthcoming new Astra to see drivable dividends from today’s everyday product development relationship with General Motors.

Smith’s blog post certainly does not read as if GM is moving towards a deal with Magna/Sberbank, whether this week or in a month of Sundays. Of course there must be a degree of megaphone negotiation involved, but the three yardsticks he sets for lenders to judge the offers – the amount of government money required; the degree of ‘independence’ truly in Opel’s long-term interest; and the question of the focus of the NewOpel group – suggest GM may still be steering towards a head-to-head collision with the German government.

 

Comments

GM is selling OPEL because GM went bust. Its selling a majority stake, so sell the lot. Its selling a commodity not founding a religion. Who cares what the CEO thinks . Just shut up and take the money.

Posted by Babeouf | Report as abusive
 

Is GM in a position to demand this and that? Were it not for US, Canada, Ontario governments big billion bailouts, GM would be now in liquidation and John Smith in the streets job hunting.

Why would Sberbank (backed by the government) invests billions into Opel without appropriate degree of control, without significant transfers of technology, without ownership of Russian productions using Open designs and technologies. Does Mr Smith think the Russians are stupid? Would HE takes the deal he complains about if he were on the Russian side? Mr Smith is an example of unfettered American arrogance even when they are down in the gutters hanging on bailout money. GM, and certainly Mr Smith is in no position to demand much of anything even with a leftover 35% ownership. As to his argument about economy of scale, true, but that not GM problem. That’s Magna/Sberhank problem and it’s up to the buyers to decide.

Although GM is the seller, its Opel division is already in German receivership. Therefore the key deciders of the nature of a deal is the German gov/court, the US government.

Posted by The Real Deal | Report as abusive
 

Perhaps all the executives at GM should be rounded up, along with the Board of Directors, and explained the concept of negligent fiduciary care (as gross incompetence is actually legal) where they caused the loss to millions of Americans, of billions of dollars of investment. Heck, the politicians which colluded in the smoke-and-mirrors bankruptcy should probably join them as well. John Smith is collecting nickels in a tin cup, and should be happy to get anything. Thats what bankruptcy is all about.

Posted by Gimmea Break | Report as abusive
 

GM’s reticence about the Russians is quite understandable. The Russians have a splendid track record in dishonouring deals and shafting partners: Stronach and the Germans have rocks in their heads to hop in bed with them. GM may get some money now from a sale, but in the future its IP would underpin a competitor that does not stick to whatever agreement might have been signed before. It may be more prudent to let Opel go bankrupt, and sell Opels branded as Chevys.

Posted by greg | Report as abusive
 

What nobody seems to get is the the IP that is being talked about isn’t owned by Opel. It is IP that GM and its subsidiaries and partners in Asia own. Opel is a small and not that significant part of GM, in the big picture. But GM’s IP is much bigger than Opel.

Mercedes and BMW have paid huge money to GM in the US to get access to GM’s hybrid technology.

Posted by stosh | Report as abusive
 

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