DETROIT - General Motors' new board may still sell its money-losing European Opel unit to a group led by Canadian auto parts maker Magna International (TSX:MG.A), but it needs guarantees that Opel's technology won't be used in Russia to compete against GM's Chevrolet, according to a person briefed on the sale talks.
The board on Friday balked at picking between bids for Adam Opel GbmH from a group led by Magna International Inc. that includes Russia's state-owned Sberbank, and one from GM's preferred bidder, Brussels-based investor RHJ International SA.
The GM board, according to industry analysts, has legitimate concerns about GM's global small and midsize car underpinnings being used by Russian automaker OAO GAZ to update its vehicles and compete with Chevrolet. GAZ has ties to Magna and Sberbank and is likely to benefit from the deal.
"It's extremely valuable vehicle technology," said Tim Urquhart, senior automotive analyst for the consulting firm IHS Global Insight in London. "They don't want to let that go to a company that might want to exploit that in any way it sees fit."
Adding to the deal's complexity is the promise of 4.5 billion euros ($6.4 billion) in credit for the deal from the German government, which prefers Magna because it would save more of Opel's 25,000 jobs. The government, however, only offered aid if GM takes Magna's bid, said the person briefed on the talks, who asked not to be identified because the negotiations are private.
But analysts say GM's 13-member board, which has seven new members, probably is less desperate to go for such a sale than the old board because it's in better financial shape due to $50 million in U.S. government aid and improving global auto sales. The old board was discussing the deal when it was trying to sell off unprofitable units and avoid bankruptcy protection.
"This is not something they would have chosen to do in the first place. It was necessary for financial reasons," said Peter Kelly, senior director of global forecasting with J.D. Power and Associates, in Oxford, England. "But when the finances looked a bit better, not just in Europe but at home, it could be reason to take stock again."
GM emerged from bankruptcy protection on July 10, 60.8 per cent owned by the U.S. government. Sales in many areas of the globe, including the U.S. and Western Europe, have risen of late due to government incentives for people to trade in older gas guzzlers for newer, more fuel-efficient models.
The GM board's indecision brought quick reaction in Germany, where politicians hope to have an Opel deal done before a Sept. 27 election. The German government said Monday it anticipates a meeting this week between a GM executive and the "Opel task force" of federal and state officials - however, a precise time was not given.
Opel's top employee representative has alluded to the possibility of a strike if no decision is made by the end of the week.
"A decision needs to be made regarding Opel's future as quickly as possible," German Finance Minister Peer Steinbrueck was quoted as telling the Handelsblatt daily. "We are under time pressure, because the Opel employees need to finally know what is happening."
Engineers with Ruesselsheim-based Opel developed GM's latest small and midsize car underpinnings on which the next generation of its vehicles will be built. The Buick LaCrosse, GM's newest vehicle in the U.S., is built on the midsize architecture.
Steinbrueck charged GM was seeking to indirectly retain Opel through RHJ, perhaps buying it back in a few years.
But IHS' Urquhart said at present, GM retaining Opel is unlikely. He said there's still a 70 per cent chance that controlling interest in Opel will go to the Magna group.
"If it wasn't losing money they'd probably keep it," he said. "I just don't think they have the sort of cash structure to be able to support that."
Under an arrangement formed earlier this year to keep Opel out of GM's filing for bankruptcy protection, 65 per cent of the carmaker has been formally under the care of a trustee since the beginning of June, with GM holding the remaining 35 per cent.
The Opel talks have reached near the highest levels of government in the U.S., with the State Department confirming that Secretary of State Hillary Rodham Clinton spoke with German Foreign Minister Frank-Walter Steinmeier about the deal on Saturday.
However, the Obama administration has said that the Opel decision is up to the GM board, and a spokesman said Monday he knows of no plans to get involved.
The German government is against RHJ for fears it will cut jobs and because of a general skepticism of private equity firms after Cerberus Capital Management LP bought Chrysler from German automaker Daimler AG, said Jim Hall, managing director of 2953 Analytics of Birmingham, Mich.
"It's the number of moving parts. That's why I'm not surprised that this is happening," he said. "It's a mess."
Magna, based in Aurora, Ont. north of Toronto and headed by Austrian-born entrepreneur Frank Stronach, hopes to use the Opel deal and the Canadian company's alliance with Russian carmaker Gaz to boost shipments of vehicles and parts from Europe to Russia, which could soon become Europe's largest car market, surpassing Germany.
Magna has said before it would likely cut some 11,600 positions at Opel, a company with about 25,000 employees.
(With files from The Canadian Press)