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Opel deal has Magna customer BMW worried

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Opel deal has Magna customer BMW worried

SEPTEMBER 14, 2009 - 12:01 AM ET

FRANKFURT (Reuters) -- Magna International Inc. is discovering that its customers like BMW are concerned that it may become a competitor as well as a vendor if it acquires a controlling stake in German carmaker Opel.

BMW's head of production Frank-Peter Arndt said it generally was a problem when a supplier became a competitor.

"Magna would be well advised to clearly separate the two businesses. If we saw a conflict of interest we would react," Arndt, told the Frankfurter Allgemeine Zeitung in an interview published on Saturday.

BMW is Magna's second biggest customer after General Motors Co.

Arndt said that BMW's luxury X3 mid-sized SUV built entirely by Magna's contract carmaking unit Magna Steyr was produced in the vehicle's own isolated area on the grounds of the company's site in Graz, Austria.

As a result, technology cannot leak to competitors since it does not roll off the same assembly line as other rival models such as Daimler's Mercedes-Benz G-Class SUV that are also manufactured elsewhere on the same site, the BMW executive explained.

"We never found out anything about the content of Daimler vehicles and I expect that goes the same for the Daimler colleagues, since the reputation of a contract carmaker depends on such things," Arndt said.

Good reputation

Even though Opel as a mass market brand does not compete with BMW as directly as Mercedes, Arndt cautioned that he would not accept it if he were to recognize any of his company's cutting-edge technology in the product of a rival carmaker.

"Until now, the company (Magna Steyr) just had to fence off the competitors from one another. That has gone well so far and that's why Magna has a good reputation in the industry," Arndt said.

"But it is an entirely different challenge if Magna itself builds and sells cars on the market," he said.

Magna generated $4.44 billion of sales through its work for BMW last year, accounting for nearly 19 percent of the Canadian parts supplier's overall business and just slightly less than Opel's former parent General Motors.

Previously, Opel's direct competitor Volkswagen had issued a thinly veiled threat it would rethink allocating business to Magna in the future if the supplier rescued Opel.

Three-quarters of Magna's $23.7 billion in revenue stems from the Detroit Big Three -- GM, Ford Motor Co. and Chrysler -- along with BMW and Daimler. The remaining $5.8 billion is generated with other customers.

On Thursday, Ford Chairman Bill Ford Jr told reporters that he felt "very comfortable" with the Opel deal.

Other suppliers could benefit

Barclays Capital published a research paper on the implications of Magna's takeover that suggested rival suppliers could recoup an expected drop in revenue in their business with Opel by picking up potential sales Magna could lose in its dealings with European carmakers.

"In particular, due to a concentrated seating market and established presence in Europe, we believe JCI would be the most likely supplier in our coverage universe to benefit from European OEMs (carmakers) moving business away from Magna," analyst Brian Johnson wrote.

Magna's founder and chairman, Frank Stronach, reaffirmed his management was taking the necessary precautions.

"I think the key for us is to have a firewall between the Magna car company and the Magna parts company and I think we've been able to demonstrate to our regular companies, to the other car companies that there's no competition," he told the Business News Network in Canada.

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BMW's a little too slooooow to make their point now

Nope, the timing is good. The story about Magna's clients threatening to cut Magna's share of their business is not a new one.

This one is significant because BMW is Magna's 2nd largest client, and also because it is BMW we're talking about. If even German companies are moaning about this, how can Mrs. Merkel still support this deal without risking even more of her political capital?

Edited by ZL-1
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Nope, the timing is good. The story about Magna's clients threatening to cut Magna's share of their business is not a new one.

This one is significant because BMW is Magna's 2nd largest client, and also because it is BMW we're talking about. If even German companies are moaning about this, how can Mrs. Merkel still support this deal without risking even more of her political capital?

Two words, lame duck.

Edited by 67impss
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I am starting to think GM knew this was a fight with Germany and the Unions they could not win no matter what they offered.

I think GM is just giving them what they wished for and showing them be careful of what you wish.

This may play back to GM making a new offer and getting what they want or they could just let them all fight over this as they sit on their 35% off to the side.

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I am starting to think GM knew this was a fight with Germany and the Unions they could not win no matter what they offered.

I think GM is just giving them what they wished for and showing them be careful of what you wish.

This may play back to GM making a new offer and getting what they want or they could just let them all fight over this as they sit on their 35% off to the side.

That is why I said in the other thread this was not over. GM knew this. They knew this was politics. Instead of leaving GM alone, Germany pushed for this because they thought:

By saving jobs, Merkel would get reelected and save face

They did not count on:

The EU coming forward saying the deal was not fair

Magna's clients saying if you do the deal, we are out

The truth coming out before the papers were signed about losing jobs and the cash needed to turn Opel around

The role Russia was going to play

GM was trying to play this out, but the Germans wanted an answer. All GM did was issue a statement. The deal is not finalized.

This is not over and may play out differently than we expect.

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That is why I said in the other thread this was not over. GM knew this. They knew this was politics. Instead of leaving GM alone, Germany pushed for this because they thought:

By saving jobs, Merkel would get reelected and save face

They did not count on:

The EU coming forward saying the deal was not fair

Magna's clients saying if you do the deal, we are out

The truth coming out before the papers were signed about losing jobs and the cash needed to turn Opel around

The role Russia was going to play

GM was trying to play this out, but the Germans wanted an answer. All GM did was issue a statement. The deal is not finalized.

This is not over and may play out differently than we expect.

At the rate things are going the option of Germany helping GM keep Opel may be a better option. GM just needs to let them decide that is the best idea. It may save more jobs in the long run and not damage the other German companies deals with Magna.

The Union will do as they are told.

As I said before With Change becareful of what you wish for as you may just get it.

The EU is a real piece of work. To think our goverment would even entertained the idea of joining any such group is a scare of a life time.

Edited by hyperv6
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That is why I said in the other thread this was not over. GM knew this. They knew this was politics. Instead of leaving GM alone, Germany pushed for this because they thought:

By saving jobs, Merkel would get reelected and save face

They did not count on:

The EU coming forward saying the deal was not fair

Magna's clients saying if you do the deal, we are out

The truth coming out before the papers were signed about losing jobs and the cash needed to turn Opel around

The role Russia was going to play

GM was trying to play this out, but the Germans wanted an answer. All GM did was issue a statement. The deal is not finalized.

This is not over and may play out differently than we expect.

The EU role is not that decisive, I think. If it was a small country like we here in Portugal, the EU would screw us and make an example out of us. Germany being involved, they will not. The potential for infighting in the EU is much more interesting assuming it is part of GM's strategy.

On the other hand, getting on the wrong foot with the powerful German unions is politically relevant.

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