Magna loses bid to build Infiniti cars for Nissan
Magna International has lost its bid to build upscale Infiniti cars for Nissan Motor Co. Ltd. at is assembly plant in Austria.
Published Friday, October 19, 2012 10:54AM EDT
Last Updated Friday, October 19, 2012 2:59PM EDT
Nissan Motor Co. Ltd. said Friday it has decided to abandon plans that would've had Magna International build its upscale Infiniti cars at an assembly plant in Austria.
The Ontario-based vehicle parts and assembly company has been informed that Nissan now plans to build the future compact Infiniti vehicle in-house, Magna also confirmed.
The two companies had announced a memorandum of understanding last May calling for the Magna Steyr plant in Austria to build the vehicle on a contract manufacturing basis.
"Although we would have liked to see the assembly of Infiniti's new compact vehicle realized at Magna Steyr, we are pleased that Magna remains an important supplier for Nissan Motor," said Gunther Apfalter, president of Magna Steyr and Magna International Europe.
"Nissan's project team has affirmed their willingness to work with Magna Steyr if future contract assembly opportunities arise, and we look forward to supporting them as needed."
The announcement marks the latest setback for Magna's assembly business, which comprises only a small portion of the Aurora, Ont.-based company's overall sales, but has been an area it wanted to grow.
Magna disclosed the planned deal for building the entry-level Infiniti model in its first-quarter earnings report May 10, describing it at the time as "an important milestone to further diversify Magna Steyr's customer portfolio." It did not put a dollar value on the deal.
But the agreement was only in its feasibility study stages as Nissan weighed the option of a third-party partner.
"Infiniti ended the feasibility study this week and has decided to produce the vehicle in-house in a European production facility as part of the brand's overall expansion production plans," Nissan said in a statement.
Earlier this month, Magna International faced a similar situation at the Austrian plant when BMW began to explore whether it would be more economical to produce its Minis in Britain and the Netherlands.
"It's been a fairly difficult business to grow," said Canaccord Genuity analyst David Tyerman.
"In fact, the business as a whole in Europe -- which is where this is basically done -- has shrunk quite a lot as an industry. There were a number of players who have gone out of business all together."
Tyerman suggests that is the nature of the assembly business, and will likely be a persistent challenge for Magna's Steyr division.
"The automakers at the end of the day are in the business of making cars, so they largely do their own assembly," he said. "The projects tend to be very niche in orientation, so sometimes there's a good amount of them and sometimes there isn't."
"I think it'll probably be a business that waxes and wanes," he added.
Magna is a leading global automotive supplier with 296 manufacturing operations and 88 product development, engineering and sales centres in 26 countries employing about 115,000 people.