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R 120938Z JUN 09 ZDK
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 2715
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UNCLAS VIENNA 000700 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EIND ECON EFIN AU
SUBJECT: Magna/Opel: Austria Likely to Guarantee EUR 300 Million 
Loan to Protect Jobs, Production 
 
REF: (A) Vienna 642; (B) Vienna 91 
 
¶1.  Austrian Vice Chancellor/Minister of Finance Josef Proell has 
announced that Austria may issue a loan guarantee to Austro-Canadian 
Magna International, the prospective buyer of Opel/GM Europe.  Magna 
is eligible for up to EUR 300 million in loan guarantees under a 
reprogrammed EUR 10 billion fund (pending expected parliamentary 
approval in July) which the GoA has designated for protecting 
industrial jobs in Austria (ref A).  Proell indicated the GoA would 
ask Magna for a commitment to the "GM Powertrain" 
engine/transmission plant in Vienna/Aspern before granting 
guarantees. 
 
¶2. Subsequently, a Ministry of Finance spokesman clarified that the 
GoA has not committed itself to Magna, and will not hold official 
talks until the Opel takeover by Magna is finalized and the loan 
guarantee program becomes law. If loans are extended, they will be 
guaranteed by the Austrian Control Bank. 
 
BACKGROUND 
- - - - - 
 
¶3.  Like other European countries, the Austrian government has 
inserted itself in the Opel takeover process to head off major 
facility closures, which would represent a massive disinvestment and 
the potential loss of thousands of manufacturing jobs.  Both GM/Opel 
and Magna are major employers in Austria: 
 
-- Since its establishment 26 years ago, GM Powertrain (which 
produces compact engines and transmissions for Opel and other 
brands) has been the largest U.S. investment in Austria and remains 
a major employer in the Vienna area (currently about 1,800 workers). 
 Until last year's automotive crisis, GM Powertrain was reportedly a 
profitable operation for GM, which sold some engines to Fiat and 
others.  In January 2009, most GM Powertrain workers were put on 
reduced hours/furlough status (ref B), but scrapping bonuses in 
Germany and Austria, which have kindled new-car sales, helped the 
unit return to normal production in May. 
 
-- Led by Austro-Canadian Frank Stronach -- a prominent figure in 
Austria -- Magna has been a high-profile employer in the country 
since the 1990s.  Magna assembles passenger cars and light trucks 
for major brands at its Magna Steyr facility in Graz.  In recent 
years the facility has built the BMW X3; Chrysler Voyager/Grand 
Voyager, 300C sedan and Touring; Jeep Grand Cherokee & Commander; 
Mercedes-Benz E-class 4MATIC and G-class; and Saab 9-3;  upcoming 
models include the Aston Martin Rapide, Peugeot 308 RC Z, and 
Porsche next-Generation Boxster and Cayman.  As of December 2008, it 
employed about 5,000 workers in Graz, about 4,000 of whom are on 
short-time status until at least October 2009 (ref B).  The 
Magna-Steyr assembly plant forms the core of southern Austria's 
"auto cluster" which accounts for tens of thousands of jobs. 
Austria is also home to Magna's European headquarters, 16 
manufacturing plants, and nine engineering and development 
facilities. 
 
COMMENT 
- - - - 
 
¶4.  Austria needs both Opel and Magna.  From the GoA's perspective, 
the new loan guarantee program offers a timely mechanism to extend 
assistance to Magna.  With so much at stake, the GoA will do all it 
can to support automotive production and sales -- not just the EUR 
300 million guarantee currently on offer.   By tying Magna's fate to 
that of Opel, however, the takeover is risky:  if Magna fails to 
turn Opel around, both pillars of Austria's automotive industry 
(which accounts for a tenth of Austria's industrial production and 
65,000 jobs) will be in peril. 
 
ORDWAY