Opel's fears

It was less than ten months ago that Chancellor Angela Merkel stood in the Chancellery with advisors and General Motors executives and said she hadn't yet made up her mind on whether to extend loan guarantees to help prevent the collapse of Opel.

Now, Merkel and her government are knee-deep in Opel's affairs, having given the company a 1.5 billion euro bridging loan in the spring before its parent company, General Motors, went into bankruptcy in the US. Merkel and her Economics Minister Karl-Theodor zu Guttenberg have been trying to broker a government-financed sale of Opel to a buyer that would be willing to guarantee the lion's share of the 25,000 Opel jobs in Germany.

Merkel put her weight behind a consortium led by Canadian auto parts maker Magna. Under the deal, Magna and its Russian partner Sberbank would each buy a 27.5-percent stake, Opel employees would take 10 percent, and the remainder would be held by GM. But GM's board refused to accept Magna's offer last week, citing concerns about intellectual property and conditions Berlin had placed on aid, among other issues.

Instead, GM hopes to sign a deal with the Belgium-based investment fund RHJ International, which has offered to take a 50.1 percent stake in Opel, leaving 39.9 percent in GM's hands and 10 percent with Opel employees. Media reports suggest that a deal with RHJ would allow GM to repurchase a controlling stake in Opel at a later date if the company and the auto industry recover from the current economic crisis.

Delay seen as inevitable

With the Magna deal on ice, at least for now, analysts say there are several possible scenarios explaining how the Opel saga might end. Most agree that a resolution is unlikely before German national elections scheduled for September 27 - a possibility Chancellor Merkel has admitted, herself.

"Substance has to be put before speed. And if there are still questions to clear up, then we'll clear them up," Merkel said Wednesday in an interview with N24 television network.

Deutsche Welle asked industry analysts what they thought about the Opel soap opera, and found there are at least five possible ways the story could end.

Scenario 1: Magna succeeds

Despite the GM board's rejection of Magna's offer for Opel, the Canadian company has a significant head-start over other bidders, if only because it has been viewed as the most serious contender from the very start and has had months to develop detailed plans for the acquisition.

"Magna had done a very in-depth analysis on Opel and they came up with a very strong restructuring program," said Ferdidand Dudenhoeffer, who runs the Center for Automotive Research at the University of Essen.

A combined Opel-Magna would receive up to 4.5 billion euros worth of state and federal loan guarantees to make the merger work, which is likely to be the most generous financing option available. German leaders have said they back Magna because the company has promised not to close any of Opel's German factories.

A deal between GM and Magna is still possible, said IHS Global Insight auto analyst Tim Urquhart, but only if Magna is prepared to make, "very, very significant concessions" on intellectual property and control of GM brands in Russia.

"Magna wanted complete control over GM operations in Russia, including the ability to sell and produce Chevrolets, completely cutting GM out of the Russian market, effectively," Urquhart said in an interview with Deutsche Welle. "They want to retain full control and full ownership of their technology."

Following the GM board's decision, Urquhart said Magna would have to rethink its approach to merging with Opel and rated the chances of a deal with Magna succeeding at about 50 percent.

Scenario 2: RHJ succeeds

As the only other bidder that stayed in the running throughout the bidding process, RHJ International, which is affiliated with the Ripplewood private equity fund, should be in a strong position. But German politicians fear the company would eliminate many jobs in Germany. In an interview in July, RHJ director Leonard Fischer said the company would slash 10,000 of Opel's 50,000 European workers in an effort to make the company more competitive.

German politicians regularly compare private equity funds to 'locusts,' making it difficult for such a bid to receive public backing.

"There is this great enmity that exists towards private equity in Germany, but it's almost gone to the point where it's completely illogical - any mention of it is completely inconceivable," said Urquhart.

Having spurned Magna's advances just weeks before Germany's national election, GM can now strong-arm the German government into financing a deal with RHJ, auto expert Dudenhoeffer said.

"I think General Motors has the best position in the world in the negotiation process," he told Deutsche Welle.

After the election, Dudenhoeffer said, GM could present the German government with the RHJ bid and a warning that it risked defaulting on its1.5 billion euro bridging loan - which could lead to bankruptcy and plant closures - if it doesn't receive government financing.

"They will continue to blackmail Germany and they will win if the Germans do not counteract," Dudenhoeffer, who supports the Magna bid, said.

Scenario 3: GM holds onto Opel

When GM began negotiations to sell Opel, the company was hemorrhaging money and seemed just weeks away from collapse. Now that the company has emerged from bankruptcy with the US government holding 60 percent of its shares and domestic sales have jumped thanks to Washington's 'cash for clunkers' program, analysts say the attitude of GM's management has changed.

"It's no longer the unstable mess it once was. It's now got a solid footing to move forward and they seem more confident about themselves," Urquhart said.

As a result, GM may now reconsider the wisdom of losing control of a company that has nearly eight percent of the market share in Europe - one of the world's largest car markets.

The challenge for GM will be to raise the three billion euros it says it would need to revamp Opel's product line. With Germany's contribution up in the air, GM would most likely approach the governments of Spain and Belgium, which are also home to Opel factories, as well as Britain, where GM has two Vauxhall factories, to obtain funding.

GM's new ownership status may also make the company more attractive for some private investors who were previously worried about taking on too much risk, Urquhart said.

"Sources of private financing might begin to open up to them now that they're underpinned by the US government - that's not a bad guarantor," said Urquhart, before adding that private investment alone is not likely to be sufficient in itself.

"They really do need that working capital from the Germans. Three billion euros is a lot of money and they're unlikely to get that kind of money just from private sources," said Urquhart.

Scenario 4: The dark horses ride back onto the scene

One of the first companies to express interest in Opel as the company's troubles began last year was Italy's Fiat, led by CEO Sergio Marchionne. The company pulled out of the race to buy Opel in May. Its bid was criticized by the German government and labor unions on the grounds that it would cost too many jobs and likely result in the closure of several German factories.

With the failure of Magna's attempt to take over Opel, Italian newspaper reports this week suggested that Marchionne might be preparing another attempt to buy Opel.

In doing so, according to researcher Dudenheoffer, Fiat could gain access to some of Opel's small-car technology, which is better-suited to the American car market than Fiat's current technology. Fiat could then use that know-how in compact models it would sell through the American car company Chrysler, of which Fiat recently acquired control.

"I don't believe that is an alternative for General Motors because, then, General Motors would have a major competitor in its home market, Chrysler, competing using GM's own technology," Dudenhoeffer said.

Other bidders could also be lurking in the wings, which could, depending on the desperation of the German government to complete the sale, quickly become serious contenders.

"There's some talk that Beijing will be back at the table, who knows?" Urquhart said, referring to a failed bid for Opel by the state-owned BAIC carmaker. "It's a crazy situation."

Scenario 5: Chaos?

If no bidder manages to secure control of Opel, and if GM fails to find the money it needs to prop up the unit, then Opel's future is hazy. German officials have said they expect GM to repay the 1.5 billion euro bridge loan, which is expected to run out by November.

"The whole thing is a bit of a Catch-22," Urquhart said, explaining that while governments want to lend money to Opel in order to secure domestic jobs, Opel needs the funding to revamp its operations - a process that's likely to shed thousands of jobs.

GM's decision to avoid choosing a bidder right away is, in Urquhart's eyes, an attempt to wait out the fervor of German electoral politics.

After the September 27 poll, which could lead to the formation of a more business-friendly coalition between Merkel's CDU and the liberal Free Democrats, GM hopes the situation "calms down and then they can evaluate and there's less of a febrile atmosphere around the negotiations," said Urquhart.

GM holds a board meeting September 8-9 and Merkel said Wednesday she hopes the company can finalize its decision about Opel's fate by then.

Author: Brett Neely
Editor: Sam Edmonds