GM decision to kill Opel deal angers Germans, embarrasses Chancellor Merkel
Wednesday, November 4, 2009 at 11:34AM The Germans are understandably angry that GM has scrapped a deal to sell its Opel division to Canada's Magna International and its partner, Russia's Sberbank. Germany's chancellor Angela Merkel had a lot riding on the deal, including her personal prestige and credibility. Roughly half of the 50,000 Opel/Vauxhall workers employed in Europe work at four plants in Germany. Her government put up €4.5 billion ($6.67 billion USD), 1.5 billion of which has already been loaned to GM as bridge financing.
A spokesman for Merkel has said that her government wants the loan repaid by the end of the month and wants details regarding GM's plans for the Opel business. Angry German auto workers, who had supported the deal from the beginning, are planning wildcat strikes and demanding payment of wage increases and bonuses they had agreed to defer until 2011. The president of the German autoworkers union blames GM for bringing Opel to the brink of disaster in the first place, and says he has little confidence in the company to do better now.
And there is the issue of layoffs: GM said yesterday that it will need to cut at least 10,000 jobs to make the Opel unit viable. The company warns that failure to make the necessary "restructuring" will end in insolvency. Where will the cuts come? At least three plants will likely close, one of them almost certainly in Antwerp. Spain fought hard against the Magna deal before finally accepting it, but now says it is back to square one with GM.
In the UK, meanwhile, workers are jubilant. GM's Vauxhall brand is made in Britain and its 5,000 workers there had feared that the new deal with Magna would have seen the end of the Vauxhall line, or heavy cuts to the workforce in two British plants. The British had been opposed to the German deal from the start, complaining to the European Commission that the deal was politically motivated and linked job retention to financial aid. This could be against the European Commission's rules and was being investigated at the time of the Magna deal's collapse.
The decision by GM to reverse its September endorsement of the sale to Magna is ostensibly the result of an improving economy in which post-bankruptcy sales are rebounding, but the strategic importance of the decision may be more important to GM. A revitalized Opel brand expanding into the growing Russian market would be a serious threat to its former parent company. Some at GM were concerned about handing over intellectual property—patents and design and manufacturing information—to the Russians.
As for Magna, except for the personal loss to Frank Stronach, whose lifelong dream of owning his own auto maker is now dashed, it could be business as usual. GM is, after all, one of Magna's biggest customers. It isn't likely he will take legal action against GM. A statement issued by Magna said that it will "continue to support Opel and GM in the challenges ahead."
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