GM European unit Opel to go to Magna, Sberbank consortium

BERLIN, Germany - General Motors Co. said Thursday that Canada's Magna International Inc. (TSX:MG.A) and Russian lender Sberbank would take a majority stake in GM's European subsidiary Adam Opel GmbH, leaving the U.S. automaker with a minority stake that will enable it to continue developing vehicles with Opel.

BERLIN, Germany - General Motors Co. said Thursday that Canada's Magna International Inc. (TSX:MG.A) and Russian lender Sberbank would take a majority stake in GM's European subsidiary Adam Opel GmbH, leaving the U.S. automaker with a minority stake that will enable it to continue developing vehicles with Opel.

Key issues - including agreement from labour unions to cost reductions and a financing package from the German government - remain to be finalized, GM said.

The deal was cheered by German Chancellor Angela Merkel, who saw it as a jobs saver ahead of Sept. 27 national elections. Magna agreed to keep Opel's four German plants open.

Magna, headed by Austrian-born entrepreneur Frank Stronach, hopes to use the Opel deal and an 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 co-chief executive Siegfried Wolf has said the company would focus on increasing Opel's market share in Russia to 20 per cent with a long-run goal of selling a million cars in the country.

"The consortium is pleased that its plan for Opel has satisfied General Motors. Together with General Motors, Opel employees and Opel dealers, the consortium will now work hard to lead Opel into a successful future," stated Siegfried Wolf, Magna's co-chief executive officer and Herman Gref, chairman of the board and chief executive officer of Sberbank.

"Additionally, the consortium is grateful to General Motors for the constructive atmosphere during the negotiations and to those parties which have provided their support for the consortium's business plan, including in particular the German government."

John Smith, GM's chief negotiator, said he anticipates the deal closing "should take place in November or December."

He said cuts in production and jobs were possible, noting that Magna's proposal contemplated a winding down of the facility in Antwerp, Belgium, and shifting some of the production at the Zaragosa, Spain plant to Eisenach in Germany.

"At the moment, I think its fair to say that in some way shape or form all four German facilities carry on," he said, referring to plants in Ruesselsheim, Eisenbach, Bochum and Kaiserslautern.

Asked about the plant in Antwerp, which makes Astras and employs 2,000 workers, Smith said that the entire European automobile industry was oversaturated with capacity.

"That applies in one way or another to all manufacturers," he said. "In all plans, Antwerp is the plant that is idle."

Klaus Franz, the chairman of the European Employee Forum of General Motors said GM's decision was embraced by workers.

"I am aware that it was a tough decision to be taken by the GM board of directors, but I am glad that the time of uncertainty for the future of the Opel and Vauxhall brands and company is over."

He said the next most important task for worker representatives was to avoid plant closures and layoffs during the restructuring process.

"Alternatives are at hand. We have developed viable alternatives and we will put them on the negotiation table," Franz said.

Auto parts firm Magna and Sberbank will purchase a 55 per cent stake and GM will hold 35 per cent. The remaining 10 per cent will go to workers.

"This is what the government wished," Merkel said. "Opel still has a difficult way ahead of it, but I trust the workers will take on the task."

Merkel said talks would be held with other countries where Opel has locations in the coming weeks to ensure the burdens of restructuring could be shared fairly. Germany's lead role in pushing the Magna deal led to fears it would seek to protect its workers first.

"It's possible now that GM and Opel will find a new way in Europe," she said. "We've taken a big step on the way ahead. We can have a new beginning."

British Business Minister Pat McFadden said his government's objective had been to "get the best possible outcome" for Vauxhall's 5,500-person work force.

"We will now continue our discussions with Magna: they have told us of their commitment to continuing production at both Ellesmere Port and Luton and we will work to make sure we get the best possible outcome for the UK," he said.

Smith said both plants in Britain were viable.

"In Luton we do a great piece of business together with Renault which we very much would like to carry on into the future," he said.

Merkel's government favoured the Canadian-Russian consortium's bid and offered euro1.5 billion ($2.2 billion) in bridge financing in May to keep Opel afloat. Merkel's government also offered another euro4.5 billion in credit for the Magna-Sberbank deal.

GM has been trying to unload Ruesselsheim, Germany-based Opel since it ran into severe financial trouble earlier this year. Industry analysts say the unit has too many employees and too much factory capacity for its sales level and its costs are too high.

But Opel and its engineers are also highly integrated into GM's global product development system, designing the underpinnings for its next generation of small and midsize cars.

Opel, which began building automobiles in 1899, was acquired by GM in 1929.

GM's decision came after months of wrangling over who was best suited to take on Opel, which also has factories in Poland, Spain, Belgium, Portugal.

Fritz Henderson, GM's chief executive said GM will continue to work with Opel and Vauxhall to develop and produce cars, keeping Opel and Vauxhall as a part of GM's product development organization, "allowing all parties to benefit from the exchange of technology and engineering resources."

"The current portfolio of Opel and Vauxhall cars and the models in the pipeline are a strong basis for future success."

GM had said it preferred another bid from Brussels-based investment firm RHJ International, in part because of fears that patents and other GM property could wind up with competitors, especially in Russia.

"Upon the successful completion of the acquisition Magna will put in place appropriate 'firewalls' to ensure a complete separation between its current auto parts business and Opel so that the confidential and proprietary information of its customers is fully protected," Stronach stated Thursday.

The Opel Trust overseeing Opel also approved the deal.

Opel employs some 49,000 workers across Europe, including 25,000 in Germany where it counts four major plants, along with Opel's headquarters.

The Opel bid is a major strategic move for Magna, which has been hurt by the troubles in the North American auto market, especially at its Detroit Three customers - GM, Ford and Chrysler - which are closing plants and slicing vehicle output.

The company, founded more than half a century ago by Stronach, has cut thousands of jobs in North America, reducing its global workforce to about 70,000 people from 84,000 two years ago.

It now hopes to grow by shifting towards other customers, including Volkswagen, BMW and Toyota and expanding its assembly business. Its successful Austrian unit, Magna Steyr, holds contracts to assemble Jeep Grand Cherokees, Chrysler Voyager minivans and BMW SUVs.

Magna is also joining the race to develop a plug-in hybrid gasoline-electric car and plans to build a prototype it could supply to a carmaker.


Krisher reported from Detroit. Associated Press Writers Melissa Eddy, Kirsten Grieshaber, Patrick McGroarty and Thomas Rietig in Berlin contributed to this report.

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