Magna plans to keep complete separation between parts business and Opel: CEO

AURORA, Ont. - Magna International Inc. (TSX:MG.A) will keep a complete separation between its parts business and its stake in the Opel auto assembly business to appease customers' worries about technology sharing, Magna's co-CEO said Monday.

AURORA, Ont. - Magna International Inc. (TSX:MG.A) will keep a complete separation between its parts business and its stake in the Opel auto assembly business to appease customers' worries about technology sharing, Magna's co-CEO said Monday.

A consortium formed by the Canadian auto parts giant and Russian lender Sberbank was picked last week by both Opel and its owner, General Motors, as the preferred candidate to take a majority stake in GM's main European unit.

Since then, Magna co-chief executive Don Walker said the Ontario-based auto parts supplier has been fielding questions from its customers about what the deal means for them, considering Magna will be part owner of their competitor.

"I personally haven't had any negative feedback, but I've had a lot of questions," Walker said, speaking at a press conference at the company's estate-like headquarters north of Toronto on Monday.

"'How are you going to restructure the company? How are you going to preserve our technology?"'

Magna has a huge, international auto parts business that supplies virtually every major automaker in the world. Now, the Canadian company through Opel will also assemble vehicles that compete with some of its main customers in Europe.

GM had initially said it preferred another bid from Brussels-based investment firm RHJ International, in part because of fears that patents and other GM property could wind up with competitors, especially in the growing market of Russia.

Walker said Magna will meet with all its customers to reassure them that the company will put "a clean firewall in place" between its parts business and Opel, and employees will not be shared between the two businesses.

"From the people I've talked to, once they understand how we're going to run our business, they're comfortable with the transaction," Walker said.

He emphasized that Magna isn't taking control of Opel, but rather making a euro250-million equity investment that it feels will bring a good return for shareholders, and this should be viewed positively by the company's customers.

"From the customer point of view, they don't want suppliers that are going to go bankrupt," he said, adding that he expects to see more and more collaboration between car companies and their suppliers in the future.

Magna's other co-CEO, Siegfried Wolf, said in Frankfurt on Monday that as many as 10,500 Opel jobs in Europe could be cut once the transaction is complete - with nearly half of them in Germany.

Wolf said part of his company's plan for Opel envisions about 4,500 possible job cuts in Germany, where the unit is based, under plans outlined in July. However, he said he hopes to minimize the cuts.

"We'll do everything we can to avoid job losses," Wolf said.

"If we convince enough customers, we'll be talking about more, not less employees."

Wolf said that jobs at the Magna parts division are safe.

Back in Aurora, Ont., Walker said Magna sees "tremendous" opportunity to expand in Russia. Magna has said it would focus on increasing Opel's market share in Russia to 20 per cent.

Magna's stake in Opel will also open the door for the company's parts business in the vast country, which is widely expected to soon surpass Germany as Europe's biggest car market, Walker added.

"If commodity prices come back, if oil prices turn around, we think there's tremendous opportunity for growth in Russia," he said, adding that Magna's presence in Russia through Opel will allow it to supply all carmakers with operations in the country.

"This is part of our geographical strategy to support our customers on global platforms."

Opel will be restricted from selling vehicles in the Canadian market until at least the fourth quarter of 2012 while GM completes its lengthy restructuring process.

After that, Walker said there are "no definitive plans" to sell - or build - Opels in Canada.

"It really depends what happens in the market... we'd also have to be in discussions with GM about what makes the most sense here," he said.

Opel employs some 49,000 workers in Europe and has plants in Spain, Britain, Poland and Germany.

Magna expects Opel to be profitable by 2011 with all government loans paid off by 2015.

The German government threw its support behind the Magna and Sberbank bid with Chancellor Angela Merkel and the German government giving euro1.5 billion in bridge financing to keep Opel afloat and offering euro4.5 billion more in credit to complete the deal.

Under the agreement, expected to close Nov. 30, Magna and Sberbank will purchase a 55 per cent stake and GM will hold 35 per cent. The remaining 10 per cent will go to workers.

The deal, announced last Thursday, still hinges on conditions that could take weeks or months to work out, such as final agreement for government financing and union support, but Wolf reiterated he expected the deal to close in November.

Under the agreement, Magna will get three seats on Opel's 20-person board of directors and will also appoint the CEO. When asked whether Wolf would be interested in heading up the troubled automaker, Walker said the company hasn't made any decisions yet, but admitted Wolf was the driving force behind the agreement and it would make sense.

Magna's A shares gained 75 cents to $47.23 on Monday at the Toronto Stock Exchange.

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