BAIC hands in the better deal for Opel

BAIC has submitted a non-binding offer document, and Reuters has a copy. The BAIC plan seems to make more sense than the Magna/Sperbank deal. To nobody’s surprise, BAIC wants to use Opel to tap the world’s largest (and growing) car market: China. The Magna/Sperbank plan hinges on a come-back of Opel in Europe and a resurgence of the Russian car market, a market that has nearly evaporated.

“As you may know, industrialization of a developing country such as China needs to have access to intellectual property. This is a top priority for the Chinese government…This is the key driver to Beijing Auto’s potential acquisition of Opel NewCo,” the offer to GM states.

BAIC’s plan is a conventional 49/51 deal, with BAIC taking 51 percent and GM 49 percent of Opel.

Magna’s plan is complicated, it has partners that could be at odds or at each other’s throats: Magna wants 20 percent, its Russian banking partner Sberbank wants 35 percent (and intends to sell it off to a Russian company like GAZ,) 35 percent would be held by GM, 10 percent by the workers. With the German government footing the bill.

Speaking of which: While Magna needs €4.5b in European government aid, BAIC would invest €660m and would need a 6-year loan of €2.64b at an expected interest rate of 8.1 percent, which would be guaranteed by European governments. A company owned by Beijing’s government should be a better creditor than a parts maker that could lose major contracts with other carmakers, and a near-dead Russian carmaker like GAZ. €1.86b less of a loan should please the cent-pinching Germans.

What should be most interesting is that BAIC wants to sell the Opels in China, taking pressure off the overcapacity in Europe, and doing something for the balance of payment between Europe and China, at least for a few years.

According to their plan, BAIC wants to sell nearly half a million Opels in China by 2015.

It plans to build up a network of 400 dealerships in China that could sell an annual total of 485,000 units of the Opel Corsa, Meriva, Zafira, Antara, Astra and the old Vectra models in China.

After initially importing a total of 60,000 European-made Opels into China in 2010 and 2011, it wants to invest $2.25 billion overall into domestic production due to begin in 2012.

Output would start at 200,000 units before growing to a capacity of 500,000 vehicles annually by 2015.

According to their plan, BAIC plans to reduce the German carmaker’s manufacturing footprint in Europe by 7,584 jobs, including just over 3,000 in Germany. BAIC counts on Opel’s vaunted engineering center.

The Magna plan foresees a little over 10,000 job cuts in Europe.

Under the BAIC plan, some 1,300 jobs would go in Zaragoza, Spain, 1,608 in Bochum and 1,160 in Opel’s main German site in Rüsselsheim.

BAIC plans to stop production at Opel’s Antwerp plant until the end of March 2010 and cut 2,446 jobs in Belgium.

Of course, after the China plant would be on-line, BAIC could export those cars easily to Europe and elsewhere, but that’s a few years and at least one German government off.

The deal looks better for the German Government, it costs them less money and less jobs. GM would get a higher percentage. However, they would also get a competitor for GM China. Come to think of it, if a 50:50 joint venture with SAIC builds a Buick on an Epsilon platform, or a 49:51 company with BAIC builds an Opel on the same platform, this shouldn’t make much of a difference. Actually, it should make for incremental sales.

Even if the BAIC deal looks better, there is that matter of Opel going to China. Germany has to choose between an instable Russia and a more solid, but also more competitive China. Says the Financial Times: “BAIC’s chances hinge on a failure of GM’s negotiations with Magna. The parts supplier is the preferred bidder and has the backing of large parts of the German government and regional politicians.” There are parts of the German government that do not like the Magna deal.