Chrysler Deal Done, Fiat Now Wants Opel
By Brendan Moore
No one could blame you if you’re starting to think that Fiat is bent on world domination; after wrapping up the Chrysler deal yesterday and ensuring their return to the huge North American market, Fiat has now turned to the struggling Opel with laser-like focus.
Fiat CEO Sergio Marchionne told reporters in Italy this morning, “Now we have to concentrate on Opel. They are our perfect partner”.
Fiat wishes to invest in Opel, thereby forming a partnership with GM in Europe. In 2000, a flush GM bought 20% of a fairly healthy Fiat for 2.4 billion dollars USD and a put option to purchase the rest of the company. GM and Fiat actually combined some of their operations and shared platforms, and are still together in South America. IN 2005, GM paid an almost-bankrupt Fiat 2 billion dollars USD to get out of the put option.
How times have changed.
GM needs an investment partner for Opel in Europe because Opel is in bad shape, and, because one of the German government’s requirements for providing aid to GM and German-native Opel is that GM gets a partner. The German government, much like the United States government regarding Chrysler, does not believe Opel can turn it around without some help. Unlike the US government, the German government is not pushing Opel into Fiat’s arms; they are not rooting for a particular potential partner, they simply want a partner of Opel that is financially secure, and can manage the company responsibly.
The other potential partner for Opel is Magna, but their interest seems to be more in line with self-preservation than becoming an auto manufacturer. Magna is one of the largest auto suppliers in the world, does a tremendous amount of business with Opel, and doesn’t want to see that business go away. Frank Stronach, the founder of Magna, said yesterday that Magna wanted to help Opel, but also wished to remain a automotive supplier as opposed to an auto producer. Surprisingly, considering the current economic environment for auto suppliers, Magna says that they have approximately 1.5 billion dollars in cash reserves and investing in a business like Opel would not harm their balance sheet.
Both Magna and Fiat have already developed pitch books for Opel executives, but the investment plans are at a very high level, and don’t contain a lot of detail yet.
If Fiat gets Opel, and the Chrysler deal holds together, Fiat will have sales volume of almost 7 million units. That will put it in second place worldwide for sales, right behind Toyota. And, those are the current sales numbers – one might argue that when sales pick up again over the next five years, Fiat will be in a better position than Toyota in terms of potential sales growth, just because of the geography involved.
It’s an interesting exercise to conjecture what an engorged Fiat might be able to do with all of these disparate pieces of other car companies, but first it has to happen.
Chrysler has to make it through a successful discharge of their bankruptcy, and Opel has to agree to do a deal with Fiat. So far, Opel’s unions and some German politicians are very much opposed to the idea. They see a lot of job losses in Germany if Fiat takes over.
But, if it all comes together, Fiat would be automotive royalty, their biggest problem being that pesky, tenacious and aggressive Kingdom of Toyota to the east.
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