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GM Reversal on Opel Deal Rankles German Officials

BY Online DA  November 4, 2009 at 12:00 AM EDT

The GM flag flys in front of an Opel plant in western Germany; TORSTEN SILZ/AFP/Getty Images

Citing an “improving business environment for GM,” the company’s board voted Tuesday to keep control of Germany-based Opel and its British sister company Vauxhall.

The Opel sale was designed in the spring as GM, facing insolvency and the need for a $50 billion federal bailout, headed toward bankruptcy. Since emerging debt-free from bankruptcy reorganization in July, however, the carmaker has seen sales climb, reporting Tuesday that sales in the U.S. rose 4.7 percent in October.

In a statement, Fritz Henderson, chief executive officer of GM, said the decision to keep Opel stemmed from the unit’s strategic importance to GM. Opel is a key supplier of GM’s popular Chevrolet Malibu sedan. GM expects the restructuring of Opel and Vauxhall to cost approximately $4.4 billion.

The change of course marks a blow to government and labor officials in Germany who saw the deal as the restructuring option best-suited to save the most jobs. German Chancellor Angela Merkel had lobbied for the sale to Magna during her country’s recent election.

The German government had given GM a $2.2 billion bridge loan to keep Opel afloat as GM searched for a buyer, and promised approximately $6.6. billion in additional financing so Magna and Sberbank could purchase a majority stake. Following the announcement by the GM board, Germany’s economy minister, Rainer Bruederle, vowed to recover the bridge financing.

Magna had said it would cut about 10,500 of the 50,000 Opel jobs in Europe, with less than half the cuts, or around 4,500, in Germany. Canada-based Opel also pledged to keep all four German plants open.

“It’s the worst decision for GM,” Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen, told Bloomberg News. Without the support of workers or Magna’s assistance, he added, Opel will “have fewer chances to survive.”