InvestorGeeks

For those that follow the car industry the linked news is definitely interesting. When I was studying to become a mechanical engineer I spent many a workterm working at Magna. My father was a higher-level manager at Magna and I used to have quite a few friends at Magna. For those that don’t know about Magna, think of it as the Microsoft of the car industry.

Magna was started by Frank Stronach an Austrian tool and die maker in the early 70’s. Frank found a niche in supplying car parts for the car industry. Supplying parts these days is a very lucrative business. What made Magna different from the rest is that they built an innovative company that appreciated its workers through things like profit-sharing.

In the late 80’s Magna had become a powerhouse in the car industry, and they wanted to take things up a notch. Since they produced most car parts, they could have easily assembled a car based on the parts they produce. The dream was for Magna to move into the very high end market. Around 1990 Magna produced a prototype of what we now call the SUV. Though Magna had it in 1990. Magna was quite ahead of its time. The car makers hearing about this car told Magna in plain English, “you compete against us and you will loose all of the car parts business.” The project was killed.

17 years have passed, and there have been up years, and down years for Magna. So when I read that they might be interested in taking a stake in Chrysler it does not surprise me. When I used to work for Magna ,Chrysler was a huge client. If Magna were to take over Chrysler this would be a good thing! In fact this would mean Canada has its own car maker. (BTW Magna is a Canadian corporation, with headquarters in Aurora Ontario).

Here is why Chrysler being taken over by Magna is a good thing:

• Magna knows the car parts industry through and through. Thus unlike other private equity companies there is a good chance that Chrysler would survive and prosper.
• Magna knows how to build relationship with its employee’s. This has always been a strength of Japanese car makers, and thus would change the landscape for a North American car maker.
• Magna is always interested in the unique and thus would continue striving for niches and innovation much like how Chrysler has done in the past (eg Chrysler innovation K-car, mini-van, etc, etc)
• Magna already has a worldwide presence and thus could enhance the Chrysler image.
• Since Magna is deeply ingrained in the car parts industry they might not immediately loose all clients.

Here is what could be bad for Magna:

• If Magna fails with Chrysler it could be a death blow to Magna. After Chrysler Magna might not have any car parts business left over.
• Chrysler and the unions are a tough nut to crack. If the unions were easy then GM and Ford would not be in the pickle they are now.

Let’s say Magna and Mercedes make a deal how would it appear? I am guessing Magna would take over day to day operations of Chrysler. Mercedes would keep a substantial piece of Chrysler, because they would not view Magna as a competitor. I would not even be surprised if Mercedes and Magna decided to create closer ties. Remember Magna CEO Stronach is a Canadian North American with strong ties to Europe and Austria. Mercedes CEO Zetsche is a German who for all intensive purposes has an American North-American mindset. Stronach and Zetsche are Germanics who love the North American way of life and this could a meeting of minds. Folks this could be very exciting!

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