General Motors Changes its Mind: Leaves the Germans Vexed

The talks that lasted months, to sell the Opel and Vauxhall arms of General Motors (GM) to Canadian parts manufacturer Magna, came to an abrupt end when GM made a sudden and unexpected about turn in plans. When GM had earlier decided to sell these off, many tried to analyze the impact on GM's market presence in Europe and Russia. The analysts are now appeased and they back GM's u-turn in plans with the following rationale.

GM never really wanted to sell off these concerns but was forced to initiate the sale process due to the spring bankruptcy proceedings after a $30.9 billion group wide loss. Opel was and is still indispensable to GM as a lot many Gm cars have been products of Opel's engineering. Opel is also a vital part of GM's global strategy, especially for growth in Europe and Russia. Now that Gm has tided over economic problems (with help from US Government during the bankruptcy protection period), it can now afford to retain these two very lucrative concerns.

As the German Government had agreed to fish out a lot of money from its pockets for the Opel sale, they had pledged Magna over 4.5 billion Euros in loans for the deal. The angry Germans now want Gm to repay the 1.5 billion Euros worth of bridge loan that was extended by the German Banks. Despite the soured deal, GM is still expecting help from the Germans over its restructuring plans for these two.

Many claim that the Germans have no right to be aggrieved despite the deal gone kaput. The sale of Opel to Magna was controversial even in its initial stages because the German Government's loan offer went against the European Commission. There were significant clues for breach of European competition rules in the deal as the loan seemed to be conditional on Magna winning the bid for Opel, beating rival bidder, a Belgian investment fund RHJ. The decision to withdraw the sale deal only came after the officials from the EU challenged the suspicious agenda behind the terms of the funding agreement. The German government still rubbishes the claims saying its offer was to save the jobs of the Opel workers.

Whatever the inside story, one can easily conclude that GM's decision to retain Opel may come at a much higher cost than expected. Firstly, the final decision rests with the trust to which the concerns were transferred to during the bankruptcy process. Secondly, one can never be too sure of the labor reaction to the now broken deal. Last but not the least, GM can not sit back and relax till the German Government ties up the dogs that are nipping at GM's heals.