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Opel Magna deal uncertainties

July 1st, 2009 | No Comments

It would seem that negotiations between Magna and GM have hit some choppy waters. GM is reportedly concerned over giving away too much technology to Magna and a prospective Opel/Vauxhall Mark 2 with its Russian connections. There’s also the issue of carving up territories for future Opel sales. GM is wary of creating a monster that hurts its own future chances in key markets.


Is the deal really moving towards being off? I somehow doubt it. The German government is still right behind Magna’s bid and has already provided bridging finance and loan guarantees for Opel. Berlin is not seeking to fuel the press speculation about other bidders being invited back to the table, though it has been acknowledging that we don’t have a done deal yet.


But it looks like there has been a bit of press manipulation emanating from Detroit. Anonymous sources said to be close to events are popping up everywhere. By creating the impression that the deal is far from done and that other bidders are very much in with a chance, GM puts added pressure on Magna in the negotiations. But if the Magna consortium bid does unravel, a whole load more uncomfortable questions get asked about other bidders, Berlin has a heart attack and, apart from anything else, even more GM management time likely gets diverted to the Opel/Vauxhall sale. They have more than enough on their plates in the Ren-Cen at the mo.


The competition for Opel/Vauxhall is still not over, but Magna’s consortium is still by far the front-runner due to its strong backing from Germany – government and labour unions. Marchionne may look on with interest, but his bid caused much consternation in Germany before and would do so again. If holding company RHJ has really improved its offer, it may well get a hearing, but it should be wary of being ‘used’ by GM as a lever to chivvy Magna. Oh, and by the way, RHJ has just posted a big loss suggesting it’s perhaps not really in position for anything more than a small role or stake. Beijing Auto? I don’t think so.


That said, if a seismic shift is coming, and Magna is really on its way out, expect an announcement very soon. Time is short. The German government needs to be on-side. And Opel is already eating into bridging finance. 

US/GERMANY: GM eyes Opel deal with RHJ – report

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Detroit seen through the eyes of money men

June 23rd, 2009 | No Comments

Breakingviews.com is an online publisher with a mission that can be summarised as getting the ‘what does it actually mean?’ area of news analysis as quickly as possible to its clients who are mainly made up of banks, financial institutions and hedge funds people. It has offices in New York and London. Their ‘views’ are a timely input to subsequent actions by people mainly working in or for the money markets.


We have had some contact with the guys there, prompted by seeing a few insightful articles related to the automotive industry. We republished an article from them on just-auto a couple of months ago: COMMENT: Fundamental problem


Anyway, they have bundled their articles written about General Motors over the last few years into a kind of   compendium – or pdf ‘book’. It’s an interesting read, chronicling GM’s slow descent into Chapter 11 and their take on it. Their financial world perspectives make for some interesting observations and deductions. And they write well and clearly.


Here’s an extract (the last para very neatly summarises Washington’s dilemma):


So for taxpayers to be made whole, the new mini-GM would have to produce earnings sufficient to support an enterprise value of at least $95bn – the sum of a $69bn market cap and its $26bn of consolidated debt and preferred stock. Using market valuation multiples of five times profits, that means New GM must generate ebitda somewhere in the order of $19bn annually.


That would require boosting annual sales to some $150bn – almost 50% more than the entire company is expected to generate this year – and matching the whopping 14% ebitda margin that Toyota achieved in its best year ever. It requires a vast leap of faith – or an audacity of hope – to believe that can happen.


Of course, the US government is not a professional money manager. The decision before it was not whether to invest either in GM or another business that would generate an acceptable return. It had to weigh up two unpalatable choices: throw taxpayers’ money onto GM’s bonfire in the hope an expedited trip through the Chapter 11 mechanic’s shop would produce a souped-up, successful carmaker; or risk having to mop up a bigger mess if a liquidated GM brought the entire US car sector down with it.


The full ‘Detroit Do-Over’ pdf is downloadable free-of-charge and in a jiffy by clicking the below link.

Detroit Do-Over pdf

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The latest Lotus proActive is out

June 19th, 2009 | No Comments

The latest edition of Lotus Engineering’s proActive e-magazine is now out and available for free download. It includes a particularly interesting feature on City Cars first published in Automotive Engineer that is well worth a read. It’s key reading for anyone seriously interested in the segment and the fundamentals that drive design in small cars.


What else is in the latest edition? As John Cleese would say in Monty Python, ‘And now for something completely different…’


I interviewed the head of a company in the Netherlands that is about to commission the world’s largest second generation biofuel manufacturing plant (BioMCN makes bio-methanol from glycerine that is a by-product of biodiesel production). BioMCN’s CEO, Rob Voncken, was certainly an interesting interviewee: a trained scientist with a business brain who is also motivated by the idea of doing something good for the environment.


He was charming and cool as a cucumber when I talked to him, but it’s quite a project he is in charge of. He could be forgiven a bit of stress as commercial production inauguration approaches. The business opportunity? In the short-term it’s about substituting bio-ethanol for bio-methanol in the gasoline alcohol blend (it can be mixed and we get ‘A85′ rather than E85 with all its food chain incursion woes). There are some pretty powerful interests behind ethanol though. 


And there’s also a fascinating insider view from the Lotus marketing department on how they approached the press launch for the Evora. It’s clearly a highly targeted exercise and they don’t do model launches often, so when they do, they put some serious thought into it. And they don’t exactly scrimp judging by the pic of the hotel on Loch Lomond. I just hope the Scottish weather was kind.


If you are signed up already for proActive, you should automatically receive an email with a link for the pdf. If not, why not get yourself signed up – it’s free.  

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Ssangyong – action needed, quick

June 18th, 2009 | No Comments

It’s a right old mess over at Ssangyong. The beleaguered firm is in Korea’s equivalent of Chapter 11 and having a tough time of it. Market conditions aren’t fine and dandy and Ssangyong’s model line-up is short on recession busting fuel-sippers; it’s a niche offering concentrated in no-frills but good value for money SUVs with some reliable Mercedes heritage technology under the skin.


Ssangyong was, however, thrown an important lifeline with the Korean bankruptcy court administrator’s decision last month to allow it to restructure rather than enter liquidation.


And there are some significant plusses in the outlook for Ssangyong. A big one is an attractive looking crossover – the C200 – just around the corner as well as an international distribution set-up. There could also be financial sweeteners for anyone prepared to invest. Overall, Ssangyong looks like a brand with potential that could actually be attractive to outside investors (another OEM, for example, just has to figure that it can do better than SAIC did). 


But the new business plan includes many job losses and that has led to a dispute with the union that has quickly paralysed production.


While some union resistance was to be expected, it has dragged on – to the detriment of those still left who want to take the business forward. It won’t be long before parts and vehicle supply lines start to run dry.


Korean labour unions aren’t to be taken lightly and the sit-in at the Pyeongtaek plant has reportedly attracted some extreme elements. The police are, by all accounts, standing off and prefering not to risk further violence by forcing the strikers out. Nipping it in the bud early on might have been the thing to do, but hindsight is a wonderful thing, of course.


The danger is that the whole thing gets more difficult to resolve the longer it goes on, positions entrenched, along with a growing siege mentality. Meanwhile, Ssangyong racks up accumulated revenue losses and confidence in the brand erodes further. And potential investors are turned off.


Decisive action immediately to end the dispute might well get the best outcomes for all concerned.

SOUTH KOREA: Ssangyong dispute rumbles along

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‘Chevrolet Group’

June 17th, 2009 | No Comments

Is the pending creation of a ‘New GM’ via a spell in Chapter 11 also a good point at which to consider some corporate re-branding? Yes.


It could be a way to jettison some of the negative baggage that comes with maintaining the name of the failed company, while emphasising that the new company really is a full-on fresh start – a new beginning. Hell, there’s a whole new name and the General is really gone.


Unlike Ford, ‘GM’ itself doesn’t figure too much as a brand on yer actual vehicles. It’s primarily a group umbrella brand that is perhaps crying out to be dropped or changed.


A re-branding would also provide an opportunity to elevate a constituent brand – one that is vital and already pre-eminent in the company’s future plans. Chevrolet fits the bill. Chevrolet is a globally crucial brand for New GM. It’s already established as a high performing brand in long-term automotive growth markets like Russia and China. It also has that striking gold bow-tie logo that is surely ready-to-go for corporate branding.


‘Chevrolet Motors’? You could maybe add the word ‘American’, too – highlighting the new company’s geographical origin and that it is actually more than just Chevrolet. ‘Chevrolet American Motors’? Mind you, there has already been an ‘American Motors’, and maybe throwing the word American in there doesn’t quite work for a global company.


Dunno. Maybe Chevrolet Group is the way to go, keeping it simple. Or how about GM2? No, that’s horrendous.


And no, I don’t think Government Motors – a mocking term bandied about by critics of the Obama administrations actions – quite works. 


Anyone else out there got any suggestions?   

ANALYSIS: New GM needs a new name

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