Magna International (MGA) has revealed that it will downsize 10,500 jobs in its newly acquired Opel/Vauxhall business in Europe. The announcement brings no surprise as the company had previously stated to retrench a fifth of the Opel workforce to make the unit financially viable.
Last week, Magna and Russia’s Sberbank acquired the Opel unit from General Motors (hereafter, GM). The deal allowed both the buyers to hold 55% stake in the unit. General Motors and the Opel workers together hold the remaining 45%.
The Canadian parts supplier has promised to restore Opel’s profitability before 2015. It has also revealed its desire to pay back the $6.55 billion loan, received from the German Government to finance the deal, by the same year.
However, Magna faces several obstacles in its blueprint to stride ahead. Firstly, the company’s plans are significantly tied to the Russian market, which has been severely depressed and needs a long time to recover. Magna and Sberbank are planning to manufacture Opel cars in Russia with the biggest automaker in the nation, Gaz Group, jointly owned by the tycoon Oleg Deripaska and Avtovaz (partly owned by France’s Renault).
Secondly, there are issues regarding copyrights on Opel’s technology transfer to Russia. GM was afraid of losing Opel’s technology to the Russian car industry as would lose Russia’s increasingly important market for its models such as Chevrolet. It will also lose the Opel engineers, who are integral to GM’s overall strategy. This will adversely affect Magna’s strategic move into the Russian market as GM still holds a stake in Opel.
We continue to recommend the shares of Magna as Neutral
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