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GM jumps ship on Opel deal — German government not happy, to say the least

For the past few months, General Motors has been in negotiations with supplier Magna and its partner Sberbank over plans to sell its Opel unit. Surprisingly, news came yesterday that General Motors, after all the time spent working out the sale, will not be selling Opel. GM noted that its new board of directors came to the decision after assessing GM’s current financial situation combined with the improving European economy. It should be noted, however, that this decision to keep Opel is coming on the heels of the EU’s Directorate-General for Competition’s investigation of the sale. Rumors had swirled in the previous months that GM’s sale of Opel to Magna was motivated not by financial reasons, but rather by German political influence.

Or could it be a combination of both?

During the selling process, the German government gave GM 1.5 billion euros to help keep Opel afloat while the two worked out the agreement; a good faith loan, if you will. GM alleges that it has already paid back 200 million of it, but regardless one could see how the German government might feel a little taken advantage of by it.

German officials, on the other hand, responded to the allegations saying that the loan is not their main concern against squashing the deal. Their concerns, allegedly, are that job cuts and plant closings will be much higher should GM keep Opel, as opposed to if Magna took over ownership.

But it gets even deeper.

Some of the unions in Germany that previously agreed to certain concessions, mostly as a means of woo-ing Magna, have now said that they will refuse to offer the same to GM.

What we do know, is that the GM employees outside of Germany are likely to be excited about the deal falling through. Should Germany have taken over Opel, then GM’s whole “restructuring process” (i.e. lay-offs, wage freezes, factory closings, etc.) in Europe would have been put on UK, Spain and Belgium. Now, GM will be able to spread the bad news equally without one region being able to exert too much influence.

With all that being said, bottom line, GM is maintaining ownership and here is the press release:

DETROIT – Given an improving business environment for GM over the past few months, and the importance of Opel//Vauxhall to GM’sglobal strategy, the GM Board of Directors has decided to retain Opel and will initiate a restructuring of its European operations in earnest.

“GM will soon present its restructuring plan to Germany and other governments and hopes for its favorable consideration,” said Fritz Henderson, president and CEO. “We understand the complexity and length of this issue has been drainingfor 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.”

On a preliminary basis, the GM plan entails total restructuring expenses of about € 3 billion, significantly lower than all bids submitted as part of the investor solicitation. GM will work with all European labor 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.

“While strained, the business environment in Europe has improved.” Henderson said. “At the same time, GM’soverall financial health and stability have improved significantly over the past few months, givingus 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.”

Henderson 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. More details on the next steps in the restructuring will be provided as the plans and developments warrant.

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