Vauxhall bail-out in doubt

GM is considering a new plan for its European operations which would sidetrack its agreement with the German government

BY Euan Stuart LAST UPDATED AT 10:12 ON Tue 25 Aug 2009

General Motors is reportedly looking to put in place a new rescue plan for its European operations, including Opel in Europe and Vauxhall in the UK. Talks have been continuing for some time over a bail-out for its operations, backed by the government in Bonn which is keen to safeguard tens of thousands of jobs in Germany. However, now that credit conditions are beginning to thaw, GM is looking more widely for a deal which contains less onerous terms, while using this as a bargaining ploy with the Germans.

GM went into bankruptcy earlier this year and as part of its restructuring plans it agreed to sell off Opel and Vauxhall to Canadian auto company Magna International in a deal backed by the German government. However it is now looking seriously at a rival bid from Brussels-based FHJ, which would involve raising €3bn of funds from the US and other European governments.

The delay in the conclusion of the rescue, which has already dragged on for several months, is leading to increasingly angry statements from German trade unions, with leader Klaus Franz saying "We have run out of patience." If the deal were de-railed it would be a body-blow to the German government, leading chancellor Angela Merkel to call for a swift resolution to the stand-off recently. However British workers would benefit from the rival bid, as RJH has made a commitment to keep UK factories open, unlike Magna.

WHAT THEY ARE SAYING:

David E. Cole, chairman of the US Automotive Research Centre, in the Wall Street Journal: "The preferred position for them is to hang on to Opel, if they can make it work financially - that really gives G.M. global scale going forward. They’re in a much better bargaining position than they were in the spring."

David Welch in BusinessWeek: "The fear, says one adviser to GM, is that Magna and its Russian partners would use the technology to compete against GM not only in Europe but in other emerging markets. GM doesn't hold all of the cards. But Merkel is under pressure to show that she has saved Opel and thousands of German jobs by striking a deal by the Sept. 27 election. So time is short. If GM can't retain control of Opel's intellectual property from Magna, it would prefer to do a deal with RHJI. Sources close to the talks say RHJI would be willing to sell the company back to GM later." · 

For further concise, balanced comment and analysis on the week's news, try The Week magazine. Subscribe today and get 6 issues completely free.