Magna International Inc. is in discussions with General Motors Co. and auto maker OAO GAZ to build a vehicle assembly plant in Russia, Magna chairman Frank Stronach says, showing that the parts giant remains eager to tap the country's emerging economy.
Just two days after GM suddenly killed long-running plans to give control of its Adam Opel GmbH unit to Magna and Russia's Sberbank, Mr. Stronach said Magna aims to build operations in Russia and expand its auto-making capabilities in conjunction with GM.
“We see it as a great market,” Mr. Stronach said Thursday. GM this week scrapped a plan to sell 55 per cent of European auto maker Opel to Magna and Sberbank. Sberbank was expected to flip its 27.5-per-cent stake in Opel to GAZ.
The Opel-GAZ hook-up, with Magna and Sberbank as intermediaries, was a key part of the Canadian auto parts giant's plan to develop in Russia, where it sees a growing middle class turning the country into one of the key global growth markets of the next decade.
“GM insists they still want to do something in Russia,” Mr. Stronach said.
That's a signal that the relationship between Magna and its largest customer has not gone sour despite GM pulling the plug on the Opel deal after senior Magna executives spent months working on the transaction.
The GM reversal has, however, sparked protests and walkouts at Opel's factories in Germany, where the company employs about half its 50,000-strong European work force.
Russian Prime Minister Vladimir Putin criticized GM's “scornful approach” toward its potential partners.
Mr. Stronach made his comments as Magna was preparing to issue its third-quarter financial results, which showed a turn back to profit. It reported a profit of $51-million (U.S.) or 45 cents a share in the quarter, compared with a loss of $215-million or $1.93 a year earlier. Restructuring actions and cost-saving measures aided the turnaround, which came despite a 16 per cent sales drop.
If the discussions between GM, Magna and GAZ conclude in a deal, one of those partners will be Russian oligarch Oleg Deripaska, who controls GAZ. Mr. Deripaska spent about $1.5-billion (U.S.) in 2007 to buy 42 per cent of a holding company that would control Magna.
Although he was forced to sell that stake last fall amid the liquidity crisis, Magna officials kept up the relationship.
The end of the Opel adventure gives Magna cash – €300-million ($475-million) – that was going to be invested in Opel and can now be used elsewhere.
The Russian government will appreciate Magna's efforts to win Opel, said one high-ranking auto industry source who knows Magna and the European market well. “They went right to the wall to show their support for Russia in the face of alienating their other customers,” the executive said. “GM will throw them some bones. The Russian government is going to say: ‘Thanks for trying.'”
Mr. Deripaska needs Magna's help to modernize GAZ, noted Warren Browne, who was GM's senior executive in Russia and the Commonwealth of Independent States region from 2004 to 2008.
And Mr. Stronach is no stranger to the Kremlin.
In November, 2006, he met with Mr. Putin, who was then Russia's president, and sketched out a plan to create 300,000 automotive jobs in that country.
