IHS Global Insight Perspective | |
Significance | Chinese automaker Beijing Automotive's blueprint for Opel includes the loss of 7,000 jobs across Europe, the closure of the company's Belgian production facility, and a huge increase in sales of Opel vehicles in China, according to a Reuters report. |
Implications | Although Magna is still the front-runner to take a controlling share in Opel, it appears that General Motors' management is taking the BAIC bid seriously and if nothing else will use it as a bargaining chip to push the Magna deal through. |
Outlook | There are serious obstacles to BAIC securing a deal for Opel, not least the German unions. However, there is an argument that such a deal represents a better industrial solution for GM, although it is likely that the bid, like Magna's, will hinge on the resolution of usage and ownership rights to GM's vehicle technology. |
Reuters has obtained a copy of the non-binding bid document from Beijing Automotive (BAIC), which shows the Chinese company's strategy for Opel if it were handed the chance to manage General Motors' (GM) European unit. Austrian-Canadian automotive components manufacturer Magna remains in the driving seat to finalise a deal with GM for a controlling stake in Opel as a result of the memorandum of understanding (MoU) the two parties signed at the end of May (see Europe: 1 June 2009: Magna Reaches Agreement with GM and German Government for Control of Opel). However, despite the insistence on both sides that a deal between GM and Magna is imminent, the bid from BAIC is emerging as an increasingly serious alternative. The BAIC non-binding offer document contains plans for the Chinese company to pay 660 million euro (US$923 million) for Opel, which is an increase on the 500 million euro of cash that Magna is willing to pay. In addition, BAIC's offer would also see GM retain a 49% stake in the company, as opposed to the 35%stake that GM would hold should the Magna deal go ahead as planned. This is bound to be one of the most attractive elements of the BAIC bid as far as GM is concerned. However, BAIC is also serious about cutting Opel's headcount in Europe as part of its bid. Reuters said that BAIC is eventually planning to halt production at Opel's Belgian plant in Antwerp, with the loss of 2,446 jobs. In addition, the bid document also states that 1,300 jobs would go in Zaragoza (Spain), along with 1,608 in Bochum and 1,160 at Opel's main German site in Rüsselsheim. In total, BAIC would look to cut 7,584 jobs across Europe, with more than 3,000 going in Germany alone. The German government is still an important player in deciding who gains eventual control of Opel and it will be less than impressed with the large number of job cuts planned in Germany, which equate to around 12% of Opel's workforce in the country. However, more attractive to the German government will be BAIC's claim that it is demanding only 2.64 billion euro in government loan guarantees, as opposed to the 4.5 billion euro being sought by Magna.
In terms of the strategy going forward, BAIC would look to use its knowledge of the Chinese market and its network in the country to spark a huge sales drive in the country. The company would look to sell 485,000 Opels in the country by 2015 by building up a network of over 400 dealerships in the country selling versions of Opel's Corsa, Meriva, Zafira, Antara, Astra, and the old Vectra models. BAIC would initially target sales of 60,000 units in 2010 and 2011 before beginning domestic production of Opel models in China by 2012. Output would initially be set at 200,000 units, growing to 500,000 units by 2015. However, as with the Magna bid, the deal hinges on BAIC gaining access to GM and Opel's vehicle technology and powertrains and being able to use that technology in a way that fits with the company's overall strategy. On this subject the bid document says, "As you may know, industrialization of a developing country such as China needs to have access to intellectual property. This is a top priority for the Chinese government...This is the key driver to Beijing Auto's potential acquisition of Opel NewCo." Reuters also claims that BAIC wants GM to reduce licensing fees to its centralised technology ownership unit, the GM Global Technology Organisation (GTO), to 3.5% from 5.0%, in particular for use of GM's Delta and Epsilon platforms. BAIC also wants GTO to license all of GM's alternative-powertrain technologies like fuel cells and hybrids to Opel China.
Outlook and Implications
Although BAIC's plans for Opel appear to be credible and on paper offer many advantages to GM and the German government over the rival Magna bid, there are still huge roadblocks to a deal being completed. Considering that GM has reportedly banned Magna from operating in China as part of its bid (see World: 3 June 2009: Magna Barred from Selling Opels in U.S. or China; Deal Could Take Six Months to Finalise) it appears that it is likely to be hugely reluctant to allow its vehicle technology to be used in the market to compete against the Chevrolet brand and other GM units. China has been one of the few global success stories for GM in recent years, with the company at one point having the best-selling passenger car in the country in the form of the Buick Excelle. At the very least it is very keen to ensure that it manages to maintain a strong presence in China and retain the market as a profit centre. However, if GM retains a 49% stake in Opel and derives technology licensing fees from BAIC using Opel technology in China this could also allow access to a potentially strong revenue stream. It is interesting, for example, that the model line-up that BAIC wants to sell in China does not include the Insignia, which is based on the Epsilon II platform, and instead includes the model's predecessor, the Vectra. This would suggest that BAIC is sensitive to GM's existing corporate strategy in China, as the company is expecting big things from the Epsilon II-based Buick Regal in the Chinese market. This suggests that BAIC is trying to formulate a strategy whereby Opel and GM's other brands can co-exist successfully in the Chinese market. It is likely that there is a considerable degree of residual nervousness on the part of GM's management in handing over large chunks of GM's proprietary technology to a Chinese carmaker given the reputation that the country's carmakers have for sailing close to the wind in terms of technology patents and outright copying of vehicle designs. Indeed GM has already been a victim of this when Chery used the GM Daewoo Matiz as the template (quite literally) for its QQ model, with Chery settling out of court over the subsequent lawsuit (see South Korea: 9 May 2005: GM Daewoo Sues Chinese Carmaker Chery over Copyright).
Given that the issue of vehicle technology ownership and rights of usage will be central to the success or otherwise of both the Magna and the BAIC bids, it is possible that the final decision will come down to whether GM is willing to cede ground in the Russian market to a Magna/GAZ-backed Opel while retaining control over that entity's access to the Chinese market, or whether it thinks it can be a full participant in an Opel that plans to succeed in China through investment in a distribution and production network. It is possible that the second option may be a better industrial solution, depending on the backing BAIC receives from its owner, the Chinese government, for the plan. However, the choice is not GM's alone and the best industrial solution, as was seen when Fiat's initial bid was discounted, is not necessarily the best solution for the Opel unions, or indeed the German government in an election year.