How the Kremlin takes the wheel at Opel

Dubai: The bidding game is over. Magna International and its Russian partners Sberbank and GAZ finally succeeded in taking over control of General Motor's German subsidiary Opel.

The decision was heavily applauded by most German politicians, Opel's workers and dealers and, eventually, the unions. And Chancellor Angela Merkel's approval will grant her a couple of points with Germany being in the midst of an election year.

Magna founder Frank Stronach brilliantly navigated through the complex negotiations, playing his best cards by promising fewer redundancies, a quick restructuring of Opel and a guarantee not to close German factories. So what's wrong with the deal?

First of all it was a political decision, a process the disappointed rival bidder, Fiat's CEO Sergio Marchionne, called a "soap opera". Magna promised to invest five billion euros (Dh26 billion) into Opel, but the company and its Russian partners will only inject a few 100 million euros in cash. The rest will be funded by government-backed 4.5 billion loans granted by German banks, including a bridging loan of 1.5 billion euros, for GM to maintain Opel's operation until the closure of the deal. At least this money is quite likely lost, given the fact that GM is about to file for bankruptcy in the coming days.

The risk of almost the entire deal obviously rests on the shoulders of the German taxpayers. And it is quite an exaggeration to call Magna's Stronach "the rescuer of Opel" as Magna's strategic advantages are not very clear.

The company always has been a supplier and a contract manufacturer for niche cars, and it has no dealer network and no management capabilities for being a mass producer.

Secondly, the Russian perspective for Opel needs some closer scrutiny. Stronach has announced that Magna will only hold 20 per cent of Opel in the future, but his partner Sberbank, Russia's biggest, and partly state-owned, business bank, is going to take over 35 per cent while GM will reduce its stake to the same level. This means, as GM is de facto bankrupt, that Sberbank - led by Russia's former economy minister German Gref - will be playing the lead role at Opel and can block all future board decisions through its relative majority.

Needless to say that Gref - who is also board member of the world biggest natural gas provider, Gazprom, and Russia's biggest telecom company, OJSC - has closest connections to the Kremlin and is one of president Vladimir Putin's economic advisers. And this is where Russian car company GAZ steps in, which is a non-investing partner in Opel's rescue consortium. GAZ (Gorkowski Avtomobilny Sawod, manufacturer of the "Volga" brand) is owned by fallen billionaire Oleg Deripaska and burdened by one billion euros of debt itself, and Sberbank is its biggest creditor.

But is GAZ of any real advantage for Opel? The company's dealer network in Russia today is smaller than that of GM despite its 77 years of presence on the market. GAZ cars produced today are on the archaic technical level of the 1970s, and there is doubt if the quality perception among Russian customers would change if GAZ produces under the Opel brand. A similar move by GAZ in 2008 to continue the production of the expired Chrysler Sebring model range - for which Deripaska bought the entire production line withdrawn from service in the USA for 150 million dollars - under the model name of "Volga Silver" has been unsuccessful as GAZ sold only 679 cars in the first quarter of 2009.

However, Magna's CEO Siegfried Wolf is targeting a market share in Russia of 20 per cent with Opel in the medium term. So we lean back and expect a broad range of simply irresistible Opels for the average Russian buyer as there is a long way to go from the German brand's current Russian market share of 3.2 per cent.