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The Opel story is far from over.

Only a few days ago, Magna International chairman Frank Stronach and his top lieutenant in Europe, Siegfried Wolf, were celebrating their apparent deal to take control of General Motors' German subsidiary.

The Canadian parts maker and its Russian partner, Sberbank, had seen off a rival bid for Opel from Fiat, the Italian auto maker that is expected to roll Chrysler into its driveway.

Everyone was happy. Angela Merkel's German government, which is pumping €1.5-billion ($2.3-billion) in bridge loans into Opel, thinks an Opel jobs crisis before the September federal elections is now unlikely.

Sberbank, which will own 35 per cent of the new Opel, sees the company as the potential saviour to the ailing Russian car industry.

The plan is to build the quality, German-engineered cars at underworked factories owned by Oleg Deripaska's GAZ Group. Mr. Stronach, a car-parts magnate with

a niche auto assembly business, would get the mass auto-making capability he has always coveted.

It wasn't long before the detractors emerged. Late last week, Jochen Homann, Germany's economics ministry state secretary, said the government cannot rule out the failure of Magna's offer. "There's always a risk that it won't succeed in the end," he said.

His comment came shortly after Karl-Theodor zu Guttenberg, Germany's young, high-flying Economy Minister, broke ranks with Ms. Merkel by refusing to support the Opel deal.

He even threatened to resign if it goes through.

"The concept is not without risks for the state and the guarantees it has promised for Opel," he told a German newspaper.

Mr. Homann suggested the bidding for Magna was, in effect, still open, even if Magna is clearly in lead position.

As if on cue, Italy's Minister of Finance and the Economy Giulio Tremonti, used a TV interview last week to confirm that the state is now prepared to support Fiat's European expansion plans. As far as anyone can tell, that plan pretty much starts and stops with Opel (though Peugeot is a long-shot partner). Germany's bridge loans for Opel, he said, would have been "unthinkable" only a few months ago. "Now the rules of the game have changed," he added. "So we'll play, too. We'll see how."

It is entirely possible that the German government is using rumours of rival bids in the wings to put pressure on Magna, all the better to force the Canadians into a quick agreement to protect Opel's four German factories (if not the ones elsewhere in Europe) and put a lower ceiling on taxpayer exposure.

It's also entirely possible the Magna bid is in serious trouble. Indeed, the obstacles - political, economic, financial and industrial - are formidable and the negotiations are just starting.

All bets are off if the deal is not sealed by the time of the German election. After the election, a new government may fret less about saving jobs. Opel has some 25,000 employees in Germany (and a similar number scattered through Britain, Belgium, Spain and a few other European countries).

Let's start with the politics. Opel is a diminished player in a diminished European market. That means Opel factories have to close, but where?

Magna has said the four German factories are safe; the German government, through its bridge loans and other assistance, has in effect purchased that assurance from the Canadians. But already Britain (which produces Opels under the Vauxhall brand), Belgium and Spain are lobbying hard to keep their factories open. Spain's Industry Minister, Miguel Sebastian, last week said his country will fight "tooth and nail" to defend the Opel plant in Zaragoza. Mr. Stronach is about to find out it's monstrously difficult, and very costly, to close European factories.

Then there is the small matter of Opel's pension burden, estimated at €4.5-billion. Magna will want the workers to take a pension haircut and will try to rope the German government into guaranteeing some of the liabilities. Magna thinks the pension negotiations will not be a deal-breaker. It could be wrong.

On the industrial side, some analysts have suggested that Magna's biggest weakness is the Magna partnership itself. Magna is a car parts maker. Sberbank is a bank with no long-term strategic interest in the auto industry. What's missing from the partnership, say the skeptics, is a bona fide car developer. The criticism is overblown. Opel is a car developer and its new models, notably the Insignia sedan, get good reviews. And don't forget that GM plans to keep 35 per cent of the new Opel. Assuming Magna and GM can come to terms on patent payments, Opel's R&D efforts will remain intact.

That's not to say that Opel will have an easy time pumping out competitive models. Once the political issues are resolved, if they're resolved, turning around Opel will emerge as Magna's biggest challenge.

Opel's market share in Western Europe peaked at 12.6 per cent in 1993, according to the European Automobile Manufacturers' Association. Last year it was 7.9 per cent and it's expected to fall to 7.4 per cent this year, putting it dangerously close to niche status.

To succeed, Opel has to reverse the market-share decline. It also has to pray that the overall market will get out of reverse gear. The entire European market is in freefall. Auto sales in Russia, the biggest potential growth area for Opel, fell 44 per cent between January and April, year-on-year.

But what about the United States and China, the world's two biggest auto markets? Bad news there. GM has told Magna that it wants to see no Opels sold in the United States. Ditto China, though Magna hopes to negotiate a way around the restriction.

There are other obstacles, among them conflicts of interest. If Magna takes over Opel, it will be both a competitor and parts supplier to some of the world's biggest auto makers. We could go on. Let's just say that Magna's bid for Opel is shaping up to be the most complicated auto deal of the year. Beware what you wish for, as they say.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
GM-N
General Motors Company
+1.7%45.35
MG-N
Mistras Group Inc
-0.52%9.56
MG-T
Magna International Inc
-0.27%73.79
MGA-N
Magna International
-0.11%54.48
MGA-T
Mega Uranium Ltd
-8%0.345

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