There has been no greater anguish than that shown by the dashing Baron
Karl-Theodor zu Guttenberg gallantly attempting to save Opel and the
livelihoods of 50,000 humble European car workers. Trailing television
camera teams and a clutch of newspaper correspondents, the 37-year-old
glamour boy of German politics has combined looking good with deep concern
far better than any of his government colleagues.
Yet when it came to the crunch, the baron - also the economics minister -
wasn’t part of the crucial decisions. And to be fair neither was Chancellor
Angela Merkel nor any of her party heavyweights.
Instead, those decisions were made in the armchairs of a luxury suite of the
Adlon Hotel in Berlin last Thursday evening. Sitting down to carve out a
deal over the future of General Motors’ European business - which includes
Opel in Germany and Vauxhall in Britain - were billionaire Frank Stronach,
the septuagenarian founder of the little-known Magna motor parts company,
and Carl-Peter Forster, boss of Opel. When they had finished, the two men
had agreed the future of Opel and Vauxhall between themselves.
Some 24 hours later, on Friday evening, their 78-page proposal was accepted by
Guttenberg, Merkel and her political colleagues as a bridge to a new future.
Holy water had been sprinkled on a deal that the Germans had little option
but to accept.
Magna has promised no factory closures in Germany and only a 10% cut in the
26,000 workforce. The outlook for Vauxhall, however, is grim.
The company has 5,500 employees at two plants, one in Ellesmere Port, the
other in Luton. The Luton plant, with 1,500 workers, looks most vulnerable
as it produces only vans for the UK market.
Tony Woodley, general secretary of the Unite union, said he “feared for the
future of Luton”. He went on: “Lord Mandelson [business secretary] has got
to do what he says he will do and negotiate for Britain. We need to protect
both of our plants. Any more jobs losses would be unacceptable.”
Mandelson has been criticised for standing too much in the shadows, letting
the Germans take the lead and protect their own. He denies this, saying he
has had close contact with Magna: “We are facing change. There is excess
capacity. Our job is to continue to be vigilant and to fight for the
interests of Vauxhall and its production here in the UK.
“When Magna tabled their offer the other week, I had a long meeting with them
during which they made it absolutely clear that they would be committed to
continued production by Vauxhall in the UK. Now I will be seeking a very
early, further meeting with them to reinforce that commitment and to make it
into a cast-iron guarantee.”
Robin Knight, partner at the restructuring firm Zolfo Cooper, said: “The big
strategic question as far as Vauxhall and the UK are concerned is whether or
not the newly independent European business needs, and can sustain, a
UK-only brand for a pan-European model range. Even under the relatively
paternalistic ownership of GM this was an issue of increasing debate. There
is little doubt it will come under renewed focus.”
GM’s bankruptcy will be the third-biggest in American history after the Lehman
Brothers investment bank and fallen telecoms giant WorldCom. At the end of
December, GM had global assets of $91 billion (£56 billion) and total
liabilities of $176.4 billion. US taxpayers have pledged GM $19.4 billion
and the eventual cost has been estimated at $50 billion.
GM’s historic bankruptcy filing is likely to take place tomorrow in New York.
The company is making use of America’s Chapter 11 bankruptcy laws to protect
itself from creditors and restructure its business. The likely scenario is
for the US government to take 72.5% of the company, the United Auto Workers
(UAW) union would own 17.5% and GM’s bond holders would control 10%.
Chrysler, GM’s smaller rival, filed for bankruptcy in April and is now close
to emerging from the other side. It plans to sell the bulk of its assets to
a new company, referred to as New Chrysler, and wind down the rest of its
business in bankruptcy while paying creditors.
The new company will be 20% owned by Fiat, which has the option of raising its
stake to 51%. The UAW will initially get a 55% stake. America and Canada,
which are lending Chrysler $4.9 billion during the bankruptcy, would own 8%
and 2%.
As a larger, more complex, company, GM’s bankruptcy may prove harder to
manage. Last week officials in the Obama administration were estimating the
process would take at least 60 to 90 days, and perhaps longer, to complete.
Obama is expected to give a press conference about the bankruptcy tomorrow.
The knock-on effects of the car industry bankruptcies are already taking their
toll. More than 180,000 jobs could be lost at car dealerships, according to
the National Association of Auto Dealers. Car-part suppliers are also being
hit hard as the manufacturers scale back. Ford’s largest supplier, Visteon,
and Metaldyne, a Michigan-based firm, have also filed for bankruptcy.
THE GERMANS have been battling to save GM Europe since March. Guttenberg, new,
dynamic and relishing being Germany’s youngest ever economics minister, held
talks in Washington with the then GM boss Rick Wagoner. He returned full of
hope, assured the American government and GM would support him.
But weeks passed without any resolution and Guttenberg was openly voicing
doubts that perhaps insolvency was a better solution than a rescue plan at
any price - particularly one where huge amounts of German taxpayers’ money
would disappear into the coffers of the American parent company.
Last Wednesday the two bidders, Magna and Fiat, were invited to a
make-or-break summit at the German chancellery. Opel was present, as was a
US Treasury official.
Magna boss Stronach, Austrian by birth, had arrived sitting in the back of a
Mercedes limousine and, with a heavy Canadian accent, said in German that he
would make Opel a powerful marque once again. By contrast, Sergio
Marchionne, the Fiat chief, came in a small family diesel, sitting in the
front passenger seat.
The lights blazed long into the night. Telephoto lenses from the waiting press
captured every move through the curtainless picture windows of the
sixth-floor conference room. Deputy chancellor Frank-Walter Steinmeier
smoked his favourite American cigarettes and staff brought in an endless
supply of snacks.
At one stage Marchionne left the talks to have a quiet smoke on his own in the
open. Perhaps his thoughts reflected those he had given in an interview,
wishing he was in a world “where I would sit at a table with reasonable
people and make reasonable decisions”. He dropped out of the bidding saying
there were risks he wasn’t prepared to take.
Eleven hours later at dawn the entire effort to save Opel had become a pending
disaster. Looking bleary-eyed, Guttenberg commented: “When I think about
last night it is in part absurd the games being played. I would have
expected more seriousness and accommodation from the American side.”
First Forster, heading the GM team, demanded an extra €350m (£306m) “at best
by Friday” to keep Opel running. This was in addition to the €1.5 billion in
loan guarantees Berlin said it was prepared to make available as part of a
€4.5 billion package over five years.
However, the real issue was the American government. The Treasury department
had sent a lawyer without the authority to make decisions. Tempers rose each
time he had to talk to Washington for advice only to find that the US
Treasury itself wasn’t up to speed on the Opel rescue plan.
The Americans were handed an ultimatum. They had until 2pm German time to
produce a contract with GM guaranteeing that GM Europe would not be part of
the insolvency proceedings in the United States, and that all factories,
licensing and technology would be handed to Opel Europe.
For the next few hours there was deadlock, until Chancellor Merkel decided to
do a Thatcher. She called President Barack Obama direct to get the
assurances she wanted.
So what are Magna’s plans? They rely mostly on a booming Russian market the
company intends to capture 20% of the sector and sell 700,000 cars a year.
This is ambitious considering the collapse in sales in Russia. It will also
launch a new environmentally friendly small car. Production in Germany would
actually be increased and at the Rüsselsheim headquarters almost doubled.
Whether this is achievable in a market that Neelie Kroes, the EU competition
commissioner, says suffers from 30% overcapacity is far from clear. Even the
German government admit the strategy has risks. Markets have a way of
punishing the unrealistic, as GM has discovered to its cost.
The end for GM has been a long time coming. The company was founded by William
“Billy” Durant, a 43-year-old high-school dropout, former cigar salesman and
manufacturer of horse-drawn vehicles in Flint, Michigan. Durant started with
Buick, turning it into the top car in America, but from the start he had
grander plans, envi-sioning a firm offering a portfolio of brands,
registering the name General Motors and adding Oldsmobile to his garage.
Durant could never have envisaged that his business would end up in the hands
of such a strange alliance of companies and individuals.
One thing is for sure - GM’s glory days are behind it.
Magna’s driving force
IT IS appropriate that Frank Stronach should have marketed his own energy
drink named simply “Frank’s”. At his age most men have retired from public
life - they are not getting themselves photographed with Miss Austria
contestants.
Outside Canada, where he made his fortune, and his native Austria, Stronach is
barely known. He was born in 1932 in Kleinsemmering, and qualified as a
toolmaker. In 1954 he emigrated to Canada, changed his name from Strohsack
and turned Franz into Frank.
After two years of casual work he started Multimatic Investments, a car-repair
business near Toronto.
As business grew he changed the name to Magna International and embarked on a
series of mergers.
Today Magna employs 70,000 people and has 240 factories across the globe. The
group makes a wide range of motor parts and also assembles the BMW X3, the
Mercedes G-Class and the Aston Martin Rapide. The financial crisis hit the
Magna group hard and its turnover fell almost 50%.
Stronach’s management style has made him a controversial figure and he has
been called autocratic.
A racehorse breeder and founder of a football academy in Austria, Stronach is
worth an estimated €1.5 billion (£1.3 billion). He is married with a son and
daughter.
