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Russia, Germany unite to save Opel

New York, May 30: The global re-ordering of the auto industry took a big step forward yesterday as an unlikely alliance led by Magna International, a Canadian auto parts maker, and Sberbank of Russia tentatively agreed to buy the European operations of General Motors.

The deal was brokered by the German government in Berlin, with negotiations stretching from Moscow to Washington, Detroit, Ontario and New York, where GM’s board gathered for a meeting ahead of an expected bankruptcy filing on Monday.

With sales plunging to levels not seen in decades, auto companies are seeking refuge in mergers or bankruptcy court. Other companies, like Magna and Fiat, are seeing opportunities in beaten-down automakers, hoping to buy them or form alliances on the cheap.

The deal in Germany will have ripple effects in the US.

Fiat had hoped to grow into a top-tier global company virtually overnight, with its nearly completed alliance with Chrysler and by buying GM of Europe, which includes Opel of Germany as well as the British auto company Vauxhall.

Although stitching together established companies on different continents is challenging, Chrysler’s prospects might have improved as part of a larger company.

Now, with Fiat apparently losing out to Magna for GM’s European operations, prospects for Chrysler’s long-term future could darken.

By contrast, a deal for GM’s European operations could resolve an important issue for the beleaguered company and help speed its restructuring in bankruptcy court. “It’s an extremely important step forward for our company and our operations in Europe,” said Carl-Peter Forster, the president of GM Europe, in an interview shortly after the talks concluded at 2am Berlin time. “We had three interested parties and it came down to one, Magna, and we hammered out a memorandum of understanding in what was basically 36 hours,” he said. “It’s a well-founded, pretty detailed MOU.”

Some industry experts immediately panned the proposed Magna alliance with GM in Europe, saying the German government had picked the Magna deal over the rival Fiat offer to safeguard nearly 25,000 jobs at home in an election year, while adding yet another player to an industry already burdened by chronic overcapacity.

German labour leaders and politicians feared that Fiat would be more aggressive in cutting jobs. “It solves nothing in terms of the industry’s structure,” said Philippe Houchois, an analyst with UBS in London. “It’ll be detrimental to the whole industry’s pricing ability, and not much good will come out of this.”

Losing Opel to Magna would be a blow to Sergio Marchionne, Fiat’s chief executive, who was initially favoured to acquire Opel.

After his recent deal for 20 per cent of Chrysler, without having to put any of Fiat’s money down, Marchionne had hoped Opel would deliver the kind of scale he believes is crucial for survival in the global auto industry.

Putting Fiat, Opel, and Chrysler under one roof would have created a company with the capacity to build nearly six million cars a year, which would have made it the second-largest global automaker after Toyota.

Instead, Fiat and Chrysler now face competition from a new player, Magna, while Marchionne and his team work to revive Chrysler’s battered fortunes. A final deal would lift Magna, whose specialty is making parts and assembling vehicles for other automakers, into the role of manufacturer. Under the terms of the deal as initially proposed by Magna, GM would retain a 35 per cent stake in the new company, with Sberbank, a bank controlled by the Russian government, taking 35 per cent, Magna holding 20 per cent.

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