To the relief of just about everyone around him, auto parts czar Frank Stronach appears prepared to ﬁnally forgo his dream of becoming a full-fledged manufacturer of cars and trucks.
The wily Austrian-born businessman’s latest effort to get into the higher-profile vehicle-manufacturing game careened off the road in November when General Motors, no longer at death’s door, decided to hang on to its European Opel division instead of selling a majority stake to Stronach’s Magna International and a Russian partner.
Stronach’s disappointment at the unexpected turn of events was etched on his craggy face, but the ofﬁcial line from the company was one of understanding (GM is Magna’s biggest customer) and a pledge to get back to basics. Suffice to say, Magna’s investors couldn’t have been happier. Shares of the Aurora, Ont.-based company soared 25 per cent by the end of the week of the announcement. Analysts, too, seemed thrilled the deal fell apart. For one thing, building cars and trucks has just as often been a road to ruin as it has to riches. Just ask Ford, GM and Chrysler, the latter of which Stronach also tried unsuccessfully to buy before the wheels fell off the entire North American industry.
The Opel deal also threatened to take Magna’s eye off the ball just as opportunities to acquire troubled auto parts companies are mounting. And then there was the not insignificant issue of alienating Magna’s current car-making customers, several of whom didn’t fancy the idea of buying their vehicle parts from a direct competitor.
But while sticking to auto parts might be the most sensible (and proﬁtable) course of action, Stronach has rarely paid much attention, if any, to what other people think of his ideas. Take his troubled foray into the horse-racing business, for example. A fan of thoroughbred horses and racing, Stronach spent huge sums of money through Magna Entertainment to scoop up racetracks across the continent in the hopes of creating an entertainment colossus, often to the chagrin of Magna International shareholders. Creaking with debt, the now spun-off company is attempting to restructure under bankruptcy protection, although Stronach has apparently not given up on the concept.
Stronach has also been criticized for taking hefty pay packages, considering he is the company’s chairman, not its CEO. Although his compensation plummeted to a paltry (by Stronach’s standards) $10.7 million excluding stock options last year, as part of a temporary effort to reflect the industry downturn, he had previously pulled in closer to $40 million or $50 million—a level that is bound to return once the industry is again firing on all cylinders.
Why should we believe his car-building fantasies will be put down more easily?