Not only is Magna International Inc. (NYSE:MGA) preparing a bid for General Motors Corp.'s (NYSE:GM) Opel unit, but now it is considering a bid for U.S. brand Saturn. As Dealscape earlier noted, Saturn for the most part is the U.S. version of Opel with four of its five models having Opel analogs. A combined Opel-Saturn under Magna ownership not only makes sense for Magna, but also might make sense for the Obama administration's industrial policies.
In the grand scheme of things, the Obama administration might
appreciate such a deal because, in essence, it creates a new North American
competitor out of the hide of GM, while providing GM a small capital
infusion. So while bankrupt Chrysler LLC might simply become a unit of Fiat SpA -- should it actually exit bankruptcy --
Magna could replace it as the third spoke in the wheel of North American auto manufacturing.
However, the deal is not a slam dunk for Magna. While Magna is certainly a contender that could keep the Saturn brand viable, GM, on the other hand, would probably prefer to keep a new formidable competitor the size of
Magna out of the marketplace. Odds then are GM would prefer to sell to rival bidder private equity firm Black Oak
Partners LP, which in the grand scheme of things seems like the least viable option
for Saturn to continue having no partner in place to offer new cars beyond 2011, when GM would stop producing cars for the business. The other bidder in the auction is a partnership between France's Renault SA and Penske Automotive Group Inc. (NYSE:PAG). While cross-border partnerships in the industry are often volatile, notes The Deal's Corporate Dealmaker, it certainly would create a viable business plan. However, creating a viable business is not in GM's best interest because it would likely compete for sales from two of GM's three surviving brands Chevy and Buick.
Nonetheless, multiple North American brands under multiple ownership might serve the industry better than one or two monolithic brands under American ownership. Sure, foreign automakers compete with GM and Ford Motor Co. (NYSE:F), but traditionally economic theory suggests that in monopolistic competition, which the auto industry resembles, the smaller firms are more likely to innovate and thereby force the slower market leaders to follow them. It is a principle called the fast second approach. The auto industry saw this circumstance transpire in the 1980s when Japanese automakers finally developed cars that met American expectation and had the added benefit of better fuel economy -- with the fuel economy itself being the major innovation. American monoliths were forced to adapt, but in the end, it seems they never caught up.
In the last two decades, we also saw another monopolistic market develop where the principle of the fast second approach became commonplace: the PC business, which is a similar commodity business to autos. In the PC business, companies like Apple Inc. (NASDAQ:AAPL) innovate, and industry leaders Dell Inc. (NASDAQ:DELL), Hewlett-Packard Co. (NYSE:HPQ) and Microsoft Corp. (NASDAQ:MSFT) copy those innovations. While not explicitly stated, this could be the reason for all the chatter about tapping Steve Jobs to head up GM.
Additionally, if the Obama administration, which on Tuesday set new mileage targets for the auto industry, really wants to see more fuel-efficient vehicles, then fostering smaller companies rather than giants might go a long way in seeing that reality come true if newcomers like Magna are given a chance to drive.
For more on the auctions see The Deal Pipeline's Opel auction profile and Saturn auction profile. - Matthew Wurtzel
See earlier story about Magna from Dealscape
See related story about Magna from Corporate Dealmaker
See related story about partnerships from Corporate Dealmaker
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