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GM to keep Opel

Not so fast: General Motors president and CEO Fritz Henderson says GM will restructure Opel and Vauxhall itself.

Upbeat General Motors pulls handbrake on deal to sell Opel and Vauxhall to Magna

Opel logo4 Nov 2009

GENERAL Motors has done an about-face and decided to keep Opel and Vauxhall.

Citing an improved business environment over the past few months, GM’s board decided in Detroit today to pull out of a deal to sell its European operation to parts-maker Magna International and its partner, Russian bank Sberbank.

Instead, GM will present a case to European governments, especially Germany, to restructure GM Europe “in earnest”.

The decision to renege on a commitment to sell the 50,000-employee engineering, manufacturing and sales operation was announced by GM president and CEO Fritz Henderson. Mr Henderson faced strong resistance from fellow board members to dump Opel, which has been a major contributor to GM through its small-car engineering expertise, advanced engine development and sales penetration across Europe and the Middle East for decades.

“We understand the complexity and length of this issue has been draining for all involved,” Mr Henderson said.

“However, from the outset, our goal has been to secure the best long-term solution for our customers, employee, suppliers, and dealers, which is reflected in the decision reached today.

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

 center imageIf Magna is angry, it did not reveal it in a short statement issued today after being advised by GM of the u-turn.

Magna's co-chief executive officer Siegfried Wolf said: "We understand that the board concluded that it was in GM's best interests to retain Opel, which plays an important role within GM's global organisation.

“We will continue to support Opel and GM in the challenges ahead and wish to thank everyone who supported the Opel restructuring process for their tireless efforts and dedication over the past several months. In particular, we wish to thank our partner, Sberbank, for its significant contribution and support throughout this process."The decision to sell Opel was made in the depths of the global financial crisis as America’s biggest motor company slid into Chapter 11 bankruptcy.

The deal seemed to be sealed in September when the GM board announced it was selling a 55 per cent stake of GM Europe to the Magna-led consortium, which also had the backing of Russian car-maker GAZ.

But conditions are rapidly improving on both sides of the Atlantic, thanks to massive stimulus packages and state aid.

GM has even recorded a five per cent increase in October sales in the US over the same month last year.

The big question now is whether other major stakeholders, including the German government and unions, will simply accept the decision.

GM Europe has been run by a trust set up in the wake of parent company’s financial collapse. Any change to the plans to sell the company will still have to be approved by that board, which includes representatives of the German government and Opel employees.

German chancellor Angela Merkel has actively lobbied for Magna bid to run Opel, pledging €4.5 billion in government guarantees if the Magna deal went ahead.

The future of such guarantees is now up in the air, and it is unclear if Opel could remain viable under GM without them. However, GM might be emboldened by a recent European Commission pronouncement that any government aid should not be tied to any one bid or it would breach competition rules.

The unions are also key to any continuation of GM ownership, as they were harshly critical of the previous GM management that led to the company’s meltdown. They, along with Opel car dealers, were to take a 10 per cent share of the new operation under Magna.

GM has put a price of €3 billion ($A4.9b) on the cost of restructuring the European operation – a cost it says was “significantly lower than all bids submitted as part of the investor solicitation”.

GM’s board will be mindful of the mess it got into in 2005 when it committed to buy all of Fiat SpA and then pulled out at the last minute – a disaster that cost the company a $2 billion pay-out hangover.

Although Australian GM subsidiary Holden is unlikely to say anything publicly about the decision to retain Opel in the GM family, it has been welcomed as a positive move.

Holden has long sourced Opel four-cylinder products and engineering – including the Delta platform under the new Cruze – while Opel and Vauxhall have provided an export market for Holden-made engines and, in Vauxhall’s case, cars in the form of the Commodore-based Vauxhall VXR.

With Holden planning to make a new Cruze-based small car in both sedan and hatchback format from the third quarter of 2010, the sale of the GM Europe operation would have been a blow for future engineering updates and potential export aspirations in Europe.

GM says it will work with all European labor unions to develop a plan for “meaningful contributions to Opel's restructuring”.

It says Opel has been exceeding its “viability plan assumptions” and “liquidity is stable”, but cautioned that time is of the essence.

“While strained, the business environment in Europe has improved,” Mr Henderson said.

“At the same time, GM’s overall financial health and stability have improved significantly over the past few months, giving us confidence that the European business can be successfully restructured.

“We are grateful for the hard work of the German and other EU governments in navigating this difficult economic period.

“We’re also appreciative of the effort put forward by Magna and its partners in Russia in trying to reach an equitable agreement.”

Instead of selling out a portion of Opel to Sberbank, GM now hopes to step up its Russian alliance with car-maker GAZ.

“GM hopes to build on its already significant business in Russia and resume work directly with GAZ to contribute to both the modernisation of its operations and the joint development of the Russian vehicle market on a mutually attractive basis,” Mr Henderson said.

The about-face by GM comes as no surprise, with rumours of GM unrest over the planned sale at the highest levels of the company.

However, US government representatives on the board of the ‘New GM’ will be keen to make sure that none of the billions of dollars the US administration has poured into saving the Detroit giant will not be spent on the other side of the Atlantic saving Opel and Vauxhall.

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