GM shocks Germany by calling off Opel deal

Given an improving business environment for General Motors over the past few months, and the importance of Opel/Vauxhall to GM’s global strategy, the GM Board of Directors has decided to retain Opel and will initiate a restructuring of its European operations in earnest. In September, GM agreed to sell a majority stake in its European Opel/Vauxhall division to a consortium of Canadian auto supplier Magna International and Russia's Sberbank. Under the deal, Magna/Sberbank would have purchased a 55% stake in New Opel; GM would have held a 35% stake and employees would have been provided a 10% stake.


"GM will soon present its restructuring plan to Germany and other governments and hopes for its favorable consideration," said Fritz Henderson, President and CEO of GM.

2009.09.10 16:24
GM to sell majority stake in European Opel to Canadian-Russian consortium

On a preliminary basis, the GM plan entails total restructuring expenses of about EUR 3 billion, significantly lower than all bids submitted as part of the investor solicitation.

"We understand the complexity and length of this issue has been draining for all involved. 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," Henderson said in a statement.

GM said it will work with all European labour unions to develop a plan for "meaningful contributions to Opel's restructuring."

"While Opel continues to outperform against its viability plan assumptions and immediate liquidity is stable, time is of the essence," it added.

"While strained, the business environment in Europe has improved." 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," Henderson said.

He added that GM also hopes to build on its already significant business in Russia and to resume work directly with GAZ to contribute to both the modernization of its operations and the joint development of the Russian vehicle market on a mutually attractive basis.

General Motors, one of the world’s largest automakers with its global headquarters in Detroit, employs 209,000 people in every major region of the world and does business in some 140 countries. It has some 25,000 employees in Germany and is the second-largest car maker after Volkswagen. GM has 50,000 employees in Europe.

Germany’s government estimated job losses of 10,900 under the sale of Opel/Vauxhall to Magna. According to unnamed sources cited by Reuters, GM’s decision left the German cabinet perplexed.

When GM filed for bankruptcy protection in June, Germany granted Opel EUR 1.5 billion bridge loan, which Economy Minister Rainer Bruederle has promised to be recovered.

"We will get back taxpayers' money," Reuters cited him as telling reporters ahead of a government meeting to discuss GM's decision on Wednesday.

GM's decision late Tuesday was an abrupt end to months of negotiations that saw Germany's government agree to provide EUR 4.5 bn in financial aid for the Magna deal in September.

GM, which emerged from a government-funded bankruptcy in July, aimed under its reorganisation scheme to sell four of its brands and focus on Chevrolet, GMC, Buick and Cadillac in the future. GM had anticipated selling its Saturn division to mega auto dealer Roger Penske, but Mr. Penske's plan died after French auto maker Renault SA, which was in talks to supply Saturn with vehicles, changed its mind. Now, GM plans to close Saturn.

"It’s the worst decision for GM," Ferdinand Dudenhöffer, director of the Center for Automotive Research at the University of Duisburg-Essen, told Bloomberg Television. Without the support of workers and Magna’s assistance in expanding in Russia, Opel will "have fewer chances to survive," he said.

"GM is overreaching itself," the automotive expert said.

"The Western European market is highly competitive. It is too much for them to succeed in the U.S. and here. They won’t make it. Sooner or later Opel will go into insolvency," Dudenhöffer concluded.