Das Opel Update von John Smith im Original

by Gastbeitrag on 7. August 2009

Gestern hat John Smith, Chefunterhändler von GM, wieder einen Blogeintrag zu der Verhandlungsposition von GM verfasst, den der Blick Log hier heute übernimmt*. Einen aktuellen Überblick über das Opel-GM-Geflecht gibt es hier. (Nachtrag vom 14.8.: Den ganz neuen Eintrag gibt es hier.)

Opel Update

After concluding several days of talks with both bidders for Opel, and with the German automotive task force, I thought an update to last week’s post would be in order, especially given extensive (and, sometimes, misleading) media coverage.

Since the ‘best and final’ offers were received on July 20, preliminary findings were compiled and shared with various stakeholders, including the German government, other European governments, the European Commission and the Opel Works Council, among others.  The past week or so has been given over to meetings with both Magna and RHJI to clarify certain aspects of each company’s proposal and to attempt to resolve, as necessary, important issues the final offers contained.  Status reports on these efforts were provided to the German automotive task force.  Press reports have tended to exaggerate the state of progress, a few even suggesting the deal is done and that Magna has been selected.

That’s not the case.

We have had constructive meetings with both Magna and RHJI this week.  As the RHJI proposal is the simpler of the two, there were very few significant issues with this offer, so most of our time has been spent working with the Magna/Sberbank team.  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.

Also, there have been a handful of technical issues related to translating the MoU into fully fledged agreements. However, most of our time continues to be devoted to resolving deviations from the MoU, some very fundamental in nature. One key point for GM is intellectual property, and this transaction should not become a pipeline, shipping valuable intellectual property to destinations unknown.

As we work through the detailed draft agreements over the next couple of days, it appears likely that more issues will be raised by the investors, especially in the engineering services and technical license areas.

Russia, intellectual property, product development responsibilities and various governance issues are among the unresolved issues, many of them on the table for some time now.  There are no such issues to resolve with the RHJI proposal which, as noted previously, is both simpler and requiring less government-backed funding compared to Magna/Sberbank.

In discussions with the German automotive task force this week, we continued to discuss and contrast the relative commercial merits of the two proposals. Some might recall analysis done by the German government’s  advisor, Lazard, such evaluation leaving a strong impression that the RHJI bid was superior.

It has been interesting to read media reports favoring one proposal over another on the basis of it being a superior ‘industrial concept’ when there is really very little difference between two proposals’ product, manufacturing and purchasing plans, the three big value-adding levers in the automobile business.  There have also been some suggestions that one proposal is superior to the other in terms of growth, when both bidders have the same global market access (as a side note, having worked in and observed Europe for a couple decades now, Opel was far more successful when focused on its home market, compared to the 90’s when it was building plants and model variants for markets on other continents).

There is also a recurring argument favoring one proposal as giving Opel more independence over the other.  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.

Despite some tough conditions to work through over the past several years, General Motors has provided significant financial support to Opel as GM, too, worked to restructure its operations. . . somewhere in excess of $5 billion, in fact.  Despite our minority shareholder status, GM will continue to support Opel by the near full reimbursement of the new company’s annual engineering budget (including a markup) and a reduction in royalties otherwise paid during the first five years of operation by over $2 billion.  While it was reported that additional financial support from GM was requested this week, I made note of these prior and future contributions, which I believe to be both substantial and adequate.

As we wrap up our talks with both bidders and consider the recommendation to be made to GM’s Board of Directors and, subsequently, the Opel Trust Board, the question of risk is very much front and center.  There are at least three elements that come to mind, thinking in lender terms:  the amount of government money required; the degree of ‘independence’ truly in Opel’s long-term interest; and the question of focus, which refers to the scope of the proposal and the ability to spend time and money on the right few things.  The ability to focus also includes keeping good alignment between the investors over time, which is more challenging with three parties compared to two.  These risk factors have also been shared with the German governments’ automotive task force this week.

More to come over the next couple of weeks andI’ll keep you posted!

John Smith
GM Group Vice President (and GM’s chief negotiator for the sale of a stake in Opel/Vauxhall)

*Da die Blogeinträge des Blogs Driving Conversations unter Creative Commons veröffentlicht sind, darf der Blick Log unter verweis auf den Originalbeitrag diesen hier übernehmen. Der Originaleintrag ist hier erschienen.


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Focus: Magna stürzt in die roten Zahlen

Focus: Opel-Übernahme: Jetzt sprechen die Chefs von GM und Magna

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