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After Many Tuneups, A Historic Overhaul
Time magazine covers were once graced by icons like GM chief executive Alfred P. Sloan and Lee Iacocca (once as Ford's chief and once as Chrysler's), but the man in automotive news this weekend is Frank Stronach, chairman of Magna. His company shows the industry's key trends and challenges.
Stronach, who began as a tool-and-die maker, moved at age 21 from his native Austria to Canada with a few hundred dollars in his pocket in 1954. He rented a garage and bought some machines. Today he has 85,000 employees. A quarter of Magna's $26 billion sales are to GM, but with the major manufacturers downsizing, Magna also assembles cars for Chrysler, BMW and Mercedes.
Unlike the ailing major manufacturers, Magna began conserving cash five years ago and has $1.5 billion in cash and no debt.
In an interview, Stronach said that Detroit's Big Three suffered from years without competition followed by years of labor strife. His company has a "constitution" that promises workers 10 percent of profit -- half paid in cash and half in stock -- over and above wages.
"The Obama administration is doing the right thing by saying they have got to do everything to preserve jobs, to preserve hope and create an environment where things will get done," Stronach said. But, he added, "you don't change a culture in a few years."
Magna's strategy for Opel also reflects the future of the auto industry: The fastest growing markets are in Brazil, Russia, India and China. But getting a foot in the door of emerging markets can be tricky. Magna has already overhauled an assembly line owned by Gaz, part of the corporate empire belonging to Russian aluminum tycoon Oleg Deripaska. Stronach said that he hopes Opel -- which last year sold about 1.5 million cars worldwide -- can make 300,000 to 400,000 there.
But Russia wants a joint venture there with Russian partners owning a major stake. Stronach said Magna would accept a minority, but controlling, share while GM would retain the same 35 percent interest it will keep in Opel. Deripaska, who is close to the Kremlin, could be a partner, but he was so pressed for cash last year that he was forced to forfeit his $1.5 billion stake in Magna, which he had pledged as collateral for a loan. The Russian state-owned bank Sberbank has pledged financing.
Political complications aren't limited to emerging markets. The Treasury has imposed a condition on the Opel deal that flies in the face of free markets, but is designed to shield existing U.S. jobs; Opel must be barred from selling cars or setting up manufacturing plants in the United States. And the Treasury insisted that, at least for a time, Opel stay out of China, where GM is strong.