GM defends plans to keep Opel

David Shepardson / Detroit News Washington Bureau

Washington -- General Motors Co.' executives today defended the board of directors' decision to abandon a sale of its European unit Adam Opel GmbH to Canada's Magna International Inc. and its Russian partner, Sberbank.

But it will eliminate about 10,000 jobs in Europe.

John Smith, GM's group vice president for corporate planning and alliances, told reporters on a conference call that the board's surprise decision Tuesday to keep Opel and Vauxhall was a close call after three months of review.

He said it had essentially been a "coin toss."

"This has been a close call all the way," Smith said, adding that it was the single biggest strategic decision that GM's new, 13-member board had to make.

The board "has come to understand the role Opel plays in our global product development," he said.

"They reached the conclusion that Opel is important to GM and GM is important to Opel. We have the means and capability to restructure the company on our own."

The board based its decision, in part, on an improved business environment in Europe and GM's overall financial health and stability since the automaker emerged from bankruptcy court after receiving about $50 billion in U.S. government aid.

Opel and its British Vauxhall operations are key parts of GM's global product development system and account for the bulk of GM sales in Europe.

GM plans to continue with a restructuring plan "similar" to what Magna, a Canadian auto supplier, had planned if it had purchased the unit, Smith said.

The automaker intends to cut about 20 percent of the unit's 50,000 jobs, Smith said. If European leaders and government officials liked the Magna turnaround plan, he said, "I believe they will like the GM plan."

Nonetheless, labor unions and the German government sharply criticized GM's plan to keep Opel.

GM is Magna's largest customer, and may get additional business from GM in Russia. But the Opel arrangement -- GM would have retained a minority stake -- raised questions about GM's long-term access to European-designed technologies.

"It was going to be a very complicated deal to manage," Smith said.

There was no guarantee that GM would keep a close tie with Opel, a unit that has been key to developing smaller, fuel-efficient engines and models globally for GM.

"That leaves potentially a pretty big strategic hole for General Motors to deal with," Smith said.

GM had repaid 600 million euros ($879 million) of the 1.5 billion euros ($2.2 billion) loaned by the German government and will repay the rest if asked, Smith said.

GM and Opel, he said, are running ahead of plan, and Opel has a healthy cash balance.

The German government has provided $2.1 billion in emergency aid and had agreed to provide more than $6 billion in loan guarantees for a deal.

German officials had said the money wasn't contingent on any specific deal, but they expressed a strong preference for a sale to Magna.

Under the deal with Magna and Sberbank, they would each have gotten a 27.5 percent stake in Opel, which is based in Ruesselsheim. GM would have kept 35 percent, and employees would have received 10 percent.

Previous bidders and interested parties included Fiat SpA, the Belgium-based industrial holding company RHJ International and Beijing Automotive Industry Corp.

The deal was thrown into question recently when a European Union commissioner raised concerns that GM's choice of bidder may have been limited by the German government's apparent decision to offer financial aid only if Opel was sold to Magna and Sberbank.

Now that the deal has been rejected, GM plans to incur about $4.4 billion in restructuring expenses, which is much less than amounts proposed by all Opel bidders, GM said Tuesday

Smith said GM informed the Obama administration's auto czar, Ron Bloom, and the U.S. Ambassador to Germany, Phil Murphy, along with European officials.

dshepardson@detnews.com (202) 662-8735