GM Keeps Opel; Supplier Magna Still a Supplier, Not a Maker

Now that General Motors has decided to keep Opel after all, it seems like some barriers are not meant to be broken for now, even in today's topsy-turvy automotive world. A while back, I wrote here that the auto industry was poised to set a couple of precedents that the industry has been approaching for decades, without quite reaching.

First, an auto retailer was about to take over its own automotive brand. But that didn't work out when Penske Automotive Group (PAG) pulled the plug on buying the Saturn brand in late September. Penske found that no other manufacturer would supply the Saturn brand once GM stopped making Saturns.

Second, a Tier 1 supplier - that is, a supplier that deals directly with the automakers themselves, as opposed to a supplier to a supplier - was about to become an automaker itself. That's not going to happen any time soon, either, since GM announced yesterday it will keep Opel instead of selling it to Canada-based supplier Magna International (MGA), in partnership with a Russia-based bank, Sberbank.

Both concepts have a lot of history behind them, and could still happen eventually.

The retailer-as-manufacturer concept is a trend that some dealers foresaw back in the late 1980s. The theory was that power would shift away from the automakers and towards the retailers, due to converging trends: declining customer loyalty; a new emphasis on the customer buying experience; and especially the growth of multi-franchise, multi-state dealership groups where one retailer could control a significant percentage of sales.

The manufacturers would pay the retailers for the most desirable shelf space, like food companies pay grocery stores for the best placement.

That didn't work out as planned. The Internet made new-car pricing transparent to the buyer. The car companies kept building more cars than they could easily sell, and bargaining power shifted entirely to the consumer. Dealers became dependent on factory-paid discounts, either direct to consumers or to the dealers. At the same time, dealership chains haven't grown as big as originally thought, in part because the factories put limits on how many franchises a single owner can buy.

The second concept, supplier-as-manufacturer, has also been a long time coming, and is probably more likely to happen eventually.

Auto suppliers have been consolidating for decades. The survivors tend to be large and well-capitalized, with "one-stop" capability, where the supplier can design and build a part or a whole automotive system, instead of being limited to cranking out a generic part that almost anyone could build.

That's a good description of Magna, which in fact has already been assembling entire cars in its factories for years, under contract to different manufacturers.

However, the Magna-Opel deal had several factors working against it, especially European Community politics. Workers and governments in Germany, Spain and France fought with each other and with EU regulators over proposed job cuts and government subsidies.

Ironically, a little prosperity also helped tip the scales toward killing the Opel sale.

"While strained, the business environment in Europe has improved," said GM President and CEO Fritz Henderson, in a written statement. "At the same time, GM's overall financial health and stability have improved significantly over the past few months, giving us confidence that the European business can be successfully restructured," he said.

That puts off supplier-as-manufacturer for another day.