Frankfurt: Magna's planned acquisition of Opel is proof that carmakers have lost the upper hand in the industry by outsourcing development work to suppliers and relying on them for technological knowhow, a top GM executive said.
"The fact is the balance of power has somewhat shifted," General Motors Vice President Carl-Peter Forster told a dinner on Wednesday evening that was organised by the American Chamber of Commerce in Germany on the occasion of the Frankfurt auto show.
The head of GM in Europe and the likely candidate to run Opel said carmakers needed to reevaluate their strategy.
"We all had the vision that the OEMs (original equipment manufacturers) should just assemble bits and pieces, do a little bit of marketing, a little bit of design and all the rest would be done by suppliers," he said.
"That was a nice vision. It sounds very lean, but the profit making opportunity is also shifting to the ones that have the technological knowhow. That is in very many cases now the supplier industry," the GM Europe president told the dinner.
Whereas volume carmakers in good years at best earn an operating margin of 4 to 5 percent, suppliers that control exclusive technology can make double-digit returns.
"As a manufacturer you have to ask yourself is this the way you want to handle your business or should you consider choosing areas you want to move back into. And interestingly enough one of the areas is electrical propulsion," Forster said.
Except for its lithium-ion cells, the battery powering the Chevrolet Volt is developed and manufactured by GM, for example.
He believes Magna, which once counted oligarch Oleg Deripaska as a large shareholder, did the deal not so much out of a desire to compete with customers directly but the huge opportunities awaiting its supplier business in Russia.
"You need to manufacture in Russia to be able to serve the market, one of the reasons being the 25 percent import duty. but you can never profitably produce in Russia unless you have a local supply industry and there is virtually no -or very little- supplier industry," Forster continued.
"I think one of the reasons why Magna is interested because together we can develop it ... Our experience shows that it is by no means easy to really attract suppliers to Russia," he added.
Magna and Russia's state-owned Sberbank would each own 27.5 percent in Opel, and Deripaska's obsolete carmaker GAZ gets access to GM technology under the deal.
Bureau Report
First Published: Thursday, September 17, 2009, 10:27