GM's Sale of Opel: Second Thoughts for Magna?

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A General Motors flag flies next to the Opel logo at the German carmaker's plant in Bochum, Germany

With the new General Motors Corp. expressing second thoughts about selling Opel to Canadian partsmaker Magna International Inc. — or anyone else, for that matter — a flip side to GM's indecision has emerged. Why would Magna want Opel when acquisition of the bankrupt European carmaker could jeopardize billions of dollars in business with existing customers — and possibly lead to its ruin?

Negotiations between GM and Magna — based in Aurora, Ont., it's one of the world's biggest auto-parts suppliers, with annual revenue of $23.7 billion — have hit one roadblock after another. A key sticking point is disagreement over Magna's right to use GM's technology and engineering, particularly in Russia and Eastern Europe, where the parts company has plans for aggressive expansion.

But as the two parties work through these prickly issues on the main stage, with German Chancellor Angela Merkel promising as much as $7 billion in badly needed state aid to Opel if Magna emerges victorious, another drama is developing behind the scenes. Some of Magna's biggest customers on both sides of the Atlantic, including Chrysler and Volkswagen, may decide to move future contracts with Magna to suppliers who are not in the business of selling cars.

Some analysts argue Magna is making a big mistake if it acquires Ruesselsheim-based Opel and its European subsidiaries, which employ 50,000 workers, most of them in Germany. "A third of the parts companies out there are in trouble right now," says Toronto analyst Dennis DesRosiers of DesRosiers Automotive Consultants. "This is an unprecedented opportunity for Magna to build its core business."

Magna's two biggest competitors, U.S.-based Lear Corp. and Delphi, are teetering on the brink of collapse. Lear filed for Chapter 11 bankruptcy protection a month ago, citing the need to restructure $3.6 billion in debt. Meanwhile, Delphi, a former GM subsidiary based in Troy, Mich., and that automaker's biggest parts supplier, emerged from bankruptcy protection in June after unloading $6.2 billion in pension liabilities on the Pension Benefit Guaranty Corp. (PBGC), a U.S. government agency whose job is to protect private pension plans.

These developments ideally position Magna, which remains on solid financial ground despite reporting a loss for the first half of 2009, to grab a much bigger share of the $400 billion global auto-parts market. This is already happening as its biggest U.S. competitors struggle with bankruptcy as a result of the near death of GM and Chrysler earlier this year.

However, Frank Stronach, Magna's flamboyantly unpredictable founder and chairman, sees the acquisition of Opel as a once-in-a-lifetime opportunity to create a global car empire on which to stamp his imprint. "It's a risky deal for Magna," says auto analyst George Magliano of IHS Global Insight. "But car assembly is something they really want to do." This ambition may be too tall an order for the Austrian-born Stronach, 76, whose entire career has been marked by both spectacular successes and failures. Most recently, his dream of creating a horse-racing and gaming empire collapsed when Magna Entertainment Corp., North America's biggest operator of racetracks, was forced into Chapter 11 earlier this year.

With GM struggling with a serious case of cold feet, it's not too late for Stronach to do a U-turn on Opel without losing face — and at the same time ensure the future prosperity of the empire he has already built.