Opel deal has Magna's 2nd biggest customer worried

By @ibtimes on

Auto parts supplier Magna is discovering that its customers like BMW are concerned that it may become a competitor as well as a vendor if it acquires a controlling stake in German carmaker Opel.

In an interview with a leading German daily, a senior executive at Magna's second biggest customer said it generally was a problem when a supplier became a competitor.

Magna would be well advised to clearly separate the two businesses. If we saw a conflict of interest we would react, BMW's head of production, Frank-Peter Arndt, told the Frankfurter Allgemeine Zeitung in an interview to be published on Saturday.

Arndt said that BMW's luxury X3 mid-sized SUV built entirely by Magna's contract carmaking unit Magna Steyr was produced in the vehicle's own isolated area on the grounds of the company's site in Graz, Austria.

As a result, technology cannot leak to competitors since it does not roll off the same assembly line as other rival models like Daimler's Mercedes-Benz G-Class SUV that are also manufactured elsewhere on the same site, the BMW executive explained.

We never found out anything about the content of Daimler vehicles and I expect that goes the same for the Daimler colleagues, since the reputation of a contract carmaker depends on such things, the production boss said.

Even though Opel as a mass market brand does not compete with BMW as directly as Mercedes, Arndt cautioned that he would not accept it if he were to recognize any of his company's cutting-edge technology in the product of a rival carmaker.

Until now, the company (Magna Steyr) just had to fence off the competitors from one another. That has gone well so far and that's why Magna has a good reputation in the industry, Arndt said.

But it is an entirely different challenge if Magna itself builds and sells cars on the market, he explained.

Magna generated $4.44 billion of sales through its work for BMW last year, accounting for nearly 19 percent of the Canadian parts supplier's overall business and just slightly less than Opel's former parent General Motors .

FIREWALLS

Previously, Opel's direct competitor Volkswagen had issued a thinly veiled threat it would rethink allocating business to Magna in the future if the supplier rescued Opel.

Three-quarters of Magna's $23.7 billion in revenue stems from the Detroit Big Three -- GM, Ford and Chrysler -- along with BMW and Daimler . The remaining $5.8 billion is generated with other customers.

On Thursday, Ford Executive Chairman Bill Ford Jr told reporters that he felt very comfortable with the Opel deal.

Barclays Capital published a brief research paper on the implications of Magna's takeover that suggested rival suppliers could recoup an expected drop in revenue in their business with Opel by picking up potential sales Magna could lose in its dealings with European carmakers.

In particular, due to a concentrated seating market and established presence in Europe, we believe JCI would be the most likely supplier in our coverage universe to benefit from European OEMs (carmakers) moving business away from Magna, analyst Brian Johnson wrote.

Magna's founder and chairman, Frank Stronach, reaffirmed his management was taking the necessary precautions.

I think the key for us is to have the Magna parts company, to have a firewall between the Magna car company and the Magna parts company and I think we've been able to demonstrate to our regular companies, to the other car companies that there's no competition, he told the Business News Network in Canada.

(Additional reporting by John McCrank in Toronto and Bernie Woodall in Detroit; editing by Leslie Gevirtz)

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