Autos September 10, 2009, 12:41PM EST

GM Will Sell Opel to Magna After All

The automaker's board decided to sell a majority stake in its European unit to the Canadian parts maker after tweaking the terms

Story Tools

The long saga surrounding the fate of General Motors' European strategy appears to be drawing to a close. After all the wrangling and hardball played by GM's board, the company still ended up accepting a deal that, if finalized, will sell a controlling stake in Opel to Canadian parts maker Magna International (MGA), GM said on Sept. 10.

GM's board initially passed on CEO Frederick A. "Fritz" Henderson's recommendation in late August to sell a controlling stake to Magna because directors didn't like some provisions they saw. The board said the proposal had some loose ends concerning the financing and the rights to the passenger car platforms and engine technology developed under GM. The fear was that Magna and Russian partner OAO Sberbank (SBER.RTS), which has ties to Russia-based automaker GAZ, would use the technology to compete against GM in China and other markets around the globe.

Under terms of the deal, GM will maintain strong ties to Opel's engineering operations in the region that will help it develop passenger cars for global markets. And while GM will surrender control of a business commanding about three-fourths of its European car sales (Chevrolet sold 215,000 of GM's 879,000 cars sold in Europe in the year's first half), Magna's Opel and GM will still be joined at the hip in Europe.

Just Bluffing

The deal with Magna appeared to have stalled out a month ago, but it's now clear that the board was playing a game of poker. Or perhaps it was good cop/bad cop, with Henderson recommending the Magna proposal but his board refusing to accept it until better terms were ironed out. In a prepared statement, Henderson said that GM, Magna, and the German government cleared up some outstanding issues in recent weeks, which spurred the board to approve the deal.

If the deal is concluded, Magna will own 55% of Opel, with GM keeping 35% and Opel employees taking 10%. The two sides have a 500-page document spelling out who gets what technology and pays what royalties. It also dictates who can compete where, says a source close to the deal. GM will collect royalties if Opel uses its technology. But in the future, Opel can charge GM if its engineers create something GM uses.

GM answered one big question with Thursday's announcement: Opel's engineering works in Russelsheim (Germany) will remain a key part of GM's product development organization. That means GM will have access to the car platforms used to develop Opel models as well as the Chevrolet Malibu, Buick Lacrosse and Insignia, and Chevy Cruze compact. Opel will also maintain the strength of GM's global purchasing power.

"I expect a healthy ongoing relationship," says IHS Global Insight analyst Neil King. "From both sides, they have to work together."

What's less clear is how the two companies will handle competitive issues. Opel, whose 657,000 sales globally in the first half of this year represented 34% of GM's global sales, is the automaker's big player in Western Europe. But it also sells cars in Russia and Eastern Europe, and has a small presence in Latin America and Asia. The new Opel is restricted from selling cars in the U.S. and South Korea. It cannot sell cars in Canada until the fourth quarter of 2012 and Opel cannot sell models similar to GM's Buick cars in China until 2015, says John Smith, GM's group vice-president for business development. But Magna and Sberbank partner GAZ will get control of Opel plants in Russia.