Opel To Funnel GM Technology To Russia

DETROIT (AP) — Last week's deal for General Motors to give up control of its money-losing Opel unit has a big downside: If the deal goes through, Russian automaker GAZ will get its hands on GM technology. Worse yet, GAZ, with cars that are light years behind most global automakers in quality as well as engines, transmissions and other technology, is likely to use what it gets from GM to compete against the Detroit automaker's Chevrolet brand in Russia.

DETROIT (AP) — Last week's deal for General Motors to give up control of its money-losing Opel unit has a big downside: If the deal goes through, Russian automaker GAZ will get its hands on GM technology.

Worse yet, GAZ, with cars that are light years behind most global automakers in quality as well as engines, transmissions and other technology, is likely to use what it gets from GM to compete against the Detroit automaker's Chevrolet brand in Russia.

"Each deal has a flip side. I think that is the risk that is currently being assessed by GM, and maybe they're willing to accept it," said Mikhail Pak, auto industry analyst with the Aton Investment Co. in Moscow.

GM said Sept. 10 that it had agreed to cede a 65 percent stake in the German-based Opel to Canadian auto parts supplier Magna International Inc. and Russia's state-owned Sberbank. GM keeps 35 percent and Opel's workers get 10 percent. Under the deal, expected to close by Nov. 30, the German government also pledged $6.5 billion in credit.

John Smith, GM's lead negotiator, told reporters last week that GM will share technology with the new Opel as well as GAZ. GM would get royalty payments for anything now in production, and GM must consent to use of new technology that isn't yet in factories.

GM, which emerged from Chapter 11 bankruptcy protection on July 10 and has received $50 billion in U.S. government aid, didn't want to sell Opel because its engineering is so integrated into GM's global product development, said Peter Kelly, senior director of global auto forecasting for J.D. Power and Associates.

Many of GM's next-generation vehicles are based on Opel's highly regarded midsize Insignia and its Astra small car, both designed by engineers in Ruesselsheim, Germany. GM didn't want to give those up but had to trade them to the Magna group so it would take on the money-losing Opel, Kelly said.

"They (Magna) have to be getting something reasonable for taking on the Opel business. The Astra and Insignia are pretty competitive cars in their segments," Kelly said.

If GAZ can produce GM-based cars, it could take sales from Chevrolet, which has grown to become the top-selling foreign brand in Russia.

Yet for GM to keep Opel and the British Vauxhall brand, which is also part of the deal, GM would have to invest billions to stay competitive in Europe, where it's difficult to make money selling cars, GM Vice Chairman Bob Lutz said in an interview.

GM this week confirmed that the deal places no restrictions on what the new owners can do with Opel technology in Russia, which had been a growth market until its economy slumped when oil prices plummeted.

Smith told reporters last week that he expects Sberbank's stake will be transferred to GAZ within the next year.

Russia has long aspired to have its automakers sell globally, and the deal could help move that forward, Kelly said.

GAZ, which now has only a small slice of the Russian car market, is so far behind other automakers that it bought licenses from Chrysler to build the Volga Siber on the previous generation of the Chrysler Sebring, a mediocre midsize car that didn't sell well in the U.S.

The Magna-Sberbank group wanted Chevrolet in Russia and other former Soviet states included in the Opel deal, Lutz said.

"That's where we said no," he said, adding that much of Chevrolet's Russian products are controlled by a GM joint venture in South Korea and weren't GM's to sell. "We didn't want to throw Chevrolet into the deal because Chevrolet is our growth opportunity," he said.

GM, though, doesn't see Opel products as a threat to Chevrolet in Russia because Opel is aimed more at the premium market while Chevrolet is more mainstream, Lutz said.

The tentative deal with Magna prohibits the new Opel from selling in the U.S. and South Korea. It restricts sales in Canada until the end of 2012 and in China for three years, according to Smith.

Other markets are open to the new Opel and it's likely Opels will show up outside of Europe, says Aaron Bragman, an industry analyst with IHS Global Insight in Ann Arbor, Mich..

"It's a big gamble to stay home," said Bragman, pointing to Latin America as a possible new market.

The fact that GM could be competing with its own designs in Russia leads Bragman to wonder if GM will someday retake control of Opel.

"I'm expecting to hear something more in the next few years," he said. "It doesn't sound like the end of the story to me."

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