/ 4 November 2009

German fury after GM scraps Opel sale

General Motors has pulled out of the sale of its European car division, provoking anger in Germany on Wednesday and stunning the global car industry.

German Economy Minister Rainer Bruederle said GM’s decision suddenly to abandon the deal with Canadian group Magna was “totally unacceptable”. The British government said, however, that it would work with the United States car giant to secure the future of British factories.

GM, which was struggling with its own bankruptcy, had made a preliminary deal to sell a 55% stake in Opel, employing about 50 000 workers in Germany, Britain, Spain, Belgium, Poland and Austria, to Canadian firm Magna and its Russian partner Sberbank.

The GM board “has decided to retain Opel and will initiate a restructuring of its European operations in earnest”, GM said in a statement

GM explained the abrupt about-turn by highlighting “an improving business environment for GM over the past few months, and the importance of Opel/Vauxhall to GM’s global strategy”.

In the background is a new landscape for auto groups and their strategies. The race is on to develop small and fuel-efficient cars. Europe is ahead of the US in this field, as evidenced by a tie-up between Fiat of Italy and US Chrysler.

Analysts expect the crisis to lead to many new, but highly selective, alliances to share both technology for electric cars and the geographical reach of distribution networks.

The Magna deal had also raised some questions about the strategy of Russian Sberbank, and also problems over possible plant closures in Europe.

Magna, which had said it would cut about 10 500 jobs, said it accepted GM’s decision. The German government reacted with disbelief however at the announcement from Detroit.

Germany has been involved in months of haggling with GM, the European Union and Magna over billions of euros of aid for the car operation.

The surprise decision dealt a blow to German Chancellor Angela Merkel who was in Washington on Tuesday. She had backed the sale to Magna as the best way to save German jobs, in tortuous negotiations shortly before a general election which she then won.

The German government was holding a cabinet meeting on Wednesday and her spokesperson Ulrich Wilhelm made clear: “The German government regrets the decision.”

Germany hoped GM would “strengthen the performance of the Opel unit,” and “limit the inevitable adaptations to the bare minimum” — a euphemism for job cuts, Wilhelm said.

Heading into the Cabinet meeting, Economy Minister Bruederle said GM’s behaviour was “totally unacceptable” and demanded to see details of GM’s restructuring plan.

Opel has about 25 000 workers at plants in Germany and 4 700 at two factories in Britain which make cars under the Vauxhall brand.

A spokesperson for the British Department for Business said London wanted “to work closely with GM to understand their plan for the business and what it means for the UK,” noting the government “would be willing to provide funding” if the “right long-term sustainable solution is identified.”

As GM toiled through its own US government-backed bankruptcy reorganisation, the sale of the European unit turned into a major controversy as governments in Europe fought to save their parts of the automaker.

GM said it now believes keeping Opel and restructuring the European division would be the most cost-effective solution and it would soon present its restructuring plan to Germany and other governments.

“From the outset, our goal has been to secure the best long-term solution for our customers, employees, suppliers and dealers, which is reflected in the decision reached today,” said GM president and chief executive Fritz Henderson.

“This was deemed to be the most stable and least costly approach for securing Opel/Vauxhall’s long-term future.”

Henderson said the restructuring costs had been estimated at $4,4-billion, “significantly lower than all bids submitted as part of the investor solicitation.” He vowed to work with European unions on the restructuring.

European Union regulators last month cast doubt on the deal, saying there were “significant indications” that German aid of $6,6-billion had been offered only if Magna and Sberbank won the bid.

Reiner Einenkel, works committee chief at Opel’s factory in Bochum, Germany, said GM’s decision created “a difficult situation for employees”.

“GM needs money to keep Opel running and we’ll make sure the government provides the means to protect Opel facilities,” he told Agence France-Presse.

GM’s finances since its bankruptcy reorganisation have not yet been reported. But on Tuesday it said US sales were 177 603 new vehicles in October, up four percent from a year ago, the company’s first year-over-year gain since January 2008. — AFP