Magna edges closer to making cars

Could Magna International grow from making just car parts into a full-fledged carmaker? It’s not all that far-fetched, say some industry pundits.

Last week, the Aurora, Ont.-based company hired former Chrysler executive Wolfgang Bernhard as a consultant, prompting a wave of rumours that the company was in talks to buy pieces of the struggling auto company. Magna, after all, had talks with Chrysler just last year about teaming up to build cars, and Bernhard had worked with Cerberus Capital Management when it took control of Chrysler in 2007. Both Magna and Chrysler immediately denied the reports. But that hasn’t dampened speculation that the company is looking to do more than make parts.

The latest reports centred on the possibility of Magna taking over a Chrysler assembly plant in Illinois or Ohio. At the Detroit auto show last week, the company also indicated it was looking to expand when it announced it was working with Ford to build a midsize electric car that could be on roads by 2011.

Some say that the idea of Magna buying Chrysler, or even parts of it, doesn’t make sense. After all, Magna is facing its own financial woes. Most likely, the end goal is to control assembly plants that would guarantee it long-term contracts with auto companies. Magna buying Chrysler “would be foolish,” says auto analyst Dennis DesRosiers, “but to be a partner with a player like Nissan/Renault could make sense under certain circumstances.”

Either way, sticking to the status quo could be disastrous. With the auto industry facing a historic downturn, auto parts makers are looking warily at what the future might hold for them. “I think we’re going to see a rash of failures in the supplier industry and I think it’s going to come in the next month or so,” Magna co-CEO Don Walker told an auto conference last week. With a prognosis like that, the real surprise would be if Magna wasn’t out looking for something bigger.