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Opel workers discuss the latest events Wednesday at the company's Antwerp plant. (THIERRY ROGE)
Opel workers discuss the latest events Wednesday at the company's Antwerp plant. (THIERRY ROGE)

Storm rages in Europe over failed Opel deal Add to ...

The knives are out for General Motors.

Fury erupted across Europe as government and union officials who spent months immersed in negotiations over the survival of Opel lashed out at GM for suddenly ending plans to give control to Magna International Inc. and Russia's Sberbank.

GM's board decision late Tuesday to retain ownership of Opel put an end to a battle between corporate interests, leaders of major European countries, and workers at Opel's far-flung operations to shape the auto maker's restructuring and preserve its economic benefits.

Officials in both Berlin and Moscow, which both have big stakes in the outcome, denounced GM for deciding to keep Opel in its fold. Germany demanded repayment of a €1.5-billion ($2.4-billion) bridge loan, while union leaders planned strikes Thursday and Friday.

The government of German Chancellor Angela Merkel, which had enthusiastically endorsed the takeover by Magna and Russian partner Sberbank, lashed out. Rainer Bruederle, the Economy Minister in the new German government, Wednesday called GM's behaviour "totally unacceptable" and demanded repayment of the loan given to GM to keep Opel alive while a restructuring plan was put in motion.

"We will get the taxpayers' money back," the Economy Minister vowed in Berlin.

A spokesman for Russian Prime Minister Vladimir Putin said GM's decision to restructure Opel itself "arouses surprise." Klaus Franz, Opel's top labour leader, vowed to protect Opel's workers instead of co-operating with a GM-led restructuring effort and said GM's European operations would get hit with a series of protest strikes.

Russia's Sberbank plans "a deep legal analysis" of GM's surprise decision to scrap the sale of Opel to Sberbank and Magna. Sources say Magna is examining whether it has a "bad-faith" case against GM.

Neither Sberbank nor Magna is likely to set the lawyers loose. But the two companies, along with the German government and the Opel workers, must wonder whether they were duped - maybe GM never had any serious intention of unloading its European auto division.

Only the GM workers in Britain, where Opels are sold under the Vauxhall brand, seemed pleased with GM's reversal. They believe GM is likely to keep Britain's two Vauxhall plants intact.

While GM might be the most hated auto company in Germany and Russia, there is no doubt the company is delighted with the board's decision to send the Canadians and the Russians packing.

To be sure, GM never hid its reluctance to sell Opel. It had owned Opel since the 1920s and the division still commands a respectable (though diminished) share of the European auto market. GM considers Opel's small cars essential to its own turnaround effort and the planned expansion into Russia.

GM went along with the proposed sale because it was about to enter Chapter 11 bankruptcy and didn't have a cent to overhaul and relaunch Opel as a competitive brand. The German government offered to fill the financing void - a total of €4.5-billion, including the bridge loan - to see it through the restructuring. Magna and Sberbank, Russia's biggest commercial bank, would share 55 per cent of Opel. GM would retain 35 per cent and Opel workers would be offered 10 per cent. GAZ, the Russian ailing auto maker controlled by Oleg Deripaska, would be retooled so it could make Opels for the potentially vast Russian market.

Even when GM was apparently committed to the sales effort, it dropped strong hints that Magna and Sberbank might not be the ideal partners. It feared Opel might simply act as a pipeline to transfer Opel technology to the rusted Russian auto sector. It was worried that Magna-built Opels would bleed into important GM markets and compete with GM brands such as Chevrolet.

But Magna had been able to secure the bridge loan for Opel and make significant headway in negotiating a drastic cost reduction effort, which would see about 10,500 of Opel's 55,000 workers eliminated and the closing of the Antwerp, Belgium, plant. In other words, Magna and friends were leading a Europe-wide restructuring that GM, at the time, was incapable of leading itself.

As it turned out, GM was not alone in questioning the Opel sale. So did the European Union's Competition Commissioner, Neelie Kroes.

Last month, a preliminary EU report found "significant indications" that Germany favoured Magna and Sberbank over other Opel bids, including one from Belgium private equity firm RHJ International. Ms. Kroes said the German government should make it clear that Opel bailout loans would be available to other bidders, not just Magna-Sberbank. The EU also made it clear that the German loans to Opel might have to be withdrawn if a competition probe determined they were awarded on the condition Opel's German plants suffered fewer relative job losses than those in other countries.

It's hard to tell whether GM saw Ms. Kroes's warnings as a threat or an opportunity. In any event, GM realized that the sale to Magna could be at best delayed, at worst derailed, by Ms. Kroes. Media reports at the time suggested that GM developed a "Plan B" - keeping Opel, a more appetizing prospect now that GM's overall health had improved along with the prospects for global auto industry recovery.

Now that Opel is apparently staying within the GM family fold, how will it be fixed?

There is no shortage of skepticism about Opel's turnaround plans under GM. Ferdinand Dudenhoeffer, the director of Germany's Centre for Automotive Research at the University of Duisburg-Essen, thinks Opel may become legally insolvent. GM, he notes, is still a ward of the U.S. and Canadian governments. It is incapable of raising large amounts of cash to overhaul Opel and has a lousy track record in making it thrive. "In the last 20 years, Opel cannot be considered a success," he said. "GM runs Opel from a conference room in Detroit. They have no feeling for the products in Europe."

He also thinks GM should not count on the European governments to hand over the €3-billion - €1.5-billion less than Magna requested - it says it needs to restructure Opel.

Indeed, Germany is upset about GM's reversal and may not be as generous when GM asks for loans for Opel. Anti-bailout sentiment seems to be rising in Germany. In June, Arcandor, the German retail and tourism giant with more than twice as many employees in Germany than Opel, went bankrupt after the German government rejected its requests for loan guarantees.

Last month, Arcandor's mail order division, Quelle, announced it would go out of business, eliminating thousands more jobs. Again, there was no government offer for help.

But autos, unlike retailing, fall into the cherished technology area, that is, an industry worth protecting. GM is gambling that the anger of the European countries that backed Magna will dissipate once they realize that Opel is worth more to their economies alive than dead. So far the Opel saga is going GM's way. A few months ago, Opel seemed lost from the GM empire. Now it's back. GM owes Magna and the German government a big "Thank you" for keeping Opel alive while it dithered.

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