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Frank Stronach should thank the gods, or at least General Motors, for taking away his chance to prove he can build cars better than customers of his Magna International empire. After all, the Canadian billionaire’s desire to take control of Adam Opel, GM’s troubled European operations, never made any sense — unless, of course, corporate suicide pacts are now an accepted business plan.
In case you haven’t heard, while Fiat/Chrysler CEO Sergio Marchionne was putting the final touches on his painstaking five-year plan to save the smallest of North America’s not-so-big-anymore Big Three earlier this month, GM decided to toss a major chunk of its restructuring plan into the garbage bin. After months of intense negotiations (with bankers, unions, suppliers, world governments, etc.), it backed out of a much-hyped $782-million deal to put the future of Opel in the hands of Magna and Kremlin-controlled lender OAO Sberbank.
Competing offers for Opel were put forth by China’s Beijing Automotive Industry Holding Corp. and RHJ International, a Brussels-based investment outfit. At one point, Fiat was also interested. But thanks to Stronach’s lobbying efforts, Magna and the Russians were offered a joint 55% stake in Opel within days of Stronach’s 77th birthday. That’s why, when the deal was tentatively inked back in September, it was widely seen as a career-making gift to Canada’s billionaire auto-parts king, who has always wanted to move up the supply chain into the ranks of the glamorous carmakers.
But planning to compete head-to-head against your owncustomers is not exactly a textbook growth strategy. And thus, Stronach has been saved from his own ambitions. Don Walker, Magna’s North America–based co-CEO, certainly isn’t crying over GM’s decision. As a loyal employee, he won’t admit he was forced to repair customer relationships and conduct damage control pretty much every time Magna’s founder voiced his grand vision for Opel — which at one point included a convoluted plan to build cars in Canada, which, under the terms of the deal, could not be sold in the U.S.
But Walker does acknowledge the company can now direct all of its energy on what it does best — serving customers. “I’ve always been 100% focused on the parts business,” he says. “But we had a team working on Opel, and we’ve now got GM’s decision, so that management effort can be redirected back into the core business.” Hopefully, he adds, the death of the Opel deal will put customer concerns to rest.
As for GM, critics are still shaking their heads in disbelief. The company is taking on considerable risk trying to save Opel shortly after emerging from bankruptcy with help from U.S. and Canadian taxpayers. The move certainly rocked the automotive and political worlds, putting Russian Prime Minister Vladimir Putin, of all people, in a position to question American business ethics. It angered German politicians, who are demanding GM repay its life-saving loans. And workers who had signed on to help restructure the company are now organizing a revolt. But any way you slice it, the deal was doomed from the start.
Opel’s small-car technology is exactly what GM needs to ensurea profitable future, which is why the Detroit automaker always planned on keeping a major stake. But because Opel was going to be run by competitors, GM insisted on terms that would have kept the company’s product out of key markets. In other words, despite the fact that GM expected to remain Opel’s largest single shareholder, it set out to handcuff the company.
To make matters worse, the optics of the deal were off. The new GM is supposed to represent a break from good ol’ boy private-jet capitalism. But Stronach is widely seen as an autocratic corporate dictator, with little regard for what shareholders think. Believe it or not, he once actually took home more compensation than the combined pay of Big Three bosses, and smirked at the howls of protest.
And don’t forget Oleg Deripaska, the Russian tycoon closely linked to Magna’s plans for Opel. American officials have never explained why they revoked his visa in 2006. But the FBI was reportedly probing Deripaska’s empire as part of investigations into organized crime.
Simply put, Magna shareholders should be dancing in the streets. Chasing Opel brought Stronach’s empire closer to General Motors — its largest customer. And instead of making a questionable play to expand in Putin’s risky backyard, Magna — one of the most respected auto-parts outfits on the planet when not sidetracked by its chairman — now has more cash to feast on roadkill in its core business before the auto sector fully recovers. Sometimes the best deals are the ones you don’t do.
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