GM Axes Opel Sale

General Motors has brought the sale of its European car division Opel/Vauxhall to a screeching halt, fueling fear and anger in Germany as the U.S. group reset its global auto strategy. GM, which was struggling with bankruptcy, had initially agreed to sell a 55% stake in Opel/Vauxhall to Magna and Sberbank.

But now, the GM board "has decided to retain Opel and will initiate a restructuring of its European operations in earnest," a statement said. GM explained the abrupt U-turn by underscoring "an improving business environment for GM over the past few months, and the importance of Opel/Vauxhall to GM's global strategy."

GM CEO Fritz Henderson said that the decision "was deemed to be the most stable and least costly approach for securing Opel/Vauxhall's long-term future." Henderson estimated restructuring costs at $4.4 billion, "significantly lower than all bids submitted as part of the investor solicitation." He vowed to work with European unions, but those in Germany swiftly promised nationwide protests, while others in Spain and Belgium called for clarification on what the GM decision meant for their members.

Some German auto analysts felt the decision was logical from an industrial viewpoint but politicians and unions were furious. Economy Minister Rainer Bruederle slammed GM's ditching of a deal with the Canadian auto parts group Magna and Russian Sberbank as "totally unacceptable." Germany had spent months haggling with GM, the European Union and Magna over billions of euros (dollars) of aid for the car operation.

The decision from Detroit dealt a blow meanwhile to German Chancellor Angela Merkel who was in Washington on Nov. 3. She backed the sale to Magna to save German jobs in tortuous talks ahead of a general election which she then won. Her cabinet met on Nov.4 to discuss the news after Bruederle demanded details of how GM would restructure Opel.

Berlin meanwhile said it would press for repayment of a 1.5-billion-euro ($US2.2 billion) loan it had made to GM.

Opel has about 25,000 workers at plants in Germany and 4,700 at two Vauxhall factories in Britain.

British authorities said however that they would work with GM to secure the future of British plants that make Opel's sister brand Vauxhall. A spokesman for the British Department for Business said London "would be willing to provide funding" for GM's restructuring of the factories if the "right long-term sustainable solution is identified."

A spokesman for Russian Prime Minister Vladimir Putin said GM's announcement "arouses surprise in Russia, and the Russian government in particular."

To survive, GM must compete successfully in a turbulent global market focused on developing small, fuel-efficient cars. Europe leads the U.S.in this field, and GM needs Opel's expertise, Metzler Bank analyst Juergen Pieper said. "The strategic importance of Opel is enormous," he said. Chrysler made the same choice when it agreed to a takeover by Italy's Fiat.

Analysts expect the economic crisis to foster highly selective alliances to share technology for electric cars and the geographical reach of distribution networks.The Magna deal had raised questions about the strategy of Sberbank, which is state owned, and possible plant closures in Europe. Magna, which had planned to cut about 10,500 jobs, said it accepted GM's decision, in contrast to reactions in Berlin and Moscow.