BERLIN - General Motors and the German government continued to spar over the sale of the automaker's European car business on Tuesday, days after GM rejected a deal backed by the government to sell Opel to an investor group led by Magna International, Canada's largest auto parts company.

GM is trying to unload the Opel and Vauxhall units as part of its effort to shed unprofitable businesses.

GM Group vice-president John Smith, in a meeting with Germany's Opel Task Force of federal and state officials, made it clear Tuesday that GM still wants to sell the money-losing Opel. The sides differ over financial liabilities, use of GM patents and safeguarding European jobs.

More talks with German officials are expected Wednesday, and Smith also will meet with Magna officials.

Tuesday's meeting came just days after GM's management board rejected the German government's aid package. The board, reconstituted after GM emerged last month from bankruptcy protection, sought more information on the aid proposal, according to a German government official who spoke on condition of anonymity given the sensitivity of the talks.

The German government favours an offer from Magna (TSX:MG.B) and Russian state-owned bank Sberbank over an offer from Brussels-based investor RHJ International SA, because fewer jobs are at risk under Magna's offer.

Opel employs about 25,000 people in Germany, about half of GM Europe's total work force. German politicians have been keen to safeguard jobs before September elections. The government is a key player in the negotiations because it is offering financial help to make a deal possible, including the euro4.5 billion (C$7 billion) credit sought for the Magna bid to avoid lengthy negotiations with other European countries that have Opel facilities.

Opel workers also largely backed Magna's plan and voiced intentions to pool funds to buy a stake in an independent company.

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 it would likely cut some 11,600 positions at Opel.

GM has lost more than $80 billion in the last four years and has received about $50 billion in aid from the U.S. government. GM wants to focus on regions such as Latin America or Asia Pacific, which have traditionally posted operating profits, and on North America, where it sees potential to make money due to cost reductions and new products.

A person briefed on the talks said GM would consider keeping Opel, but only as a "Plan B." The company would still prefer to give up controlling interest. A major snag has developed, though, over liability should Opel fail under its new ownership and default on its debts, said the person, who asked not to be identified because the talks are private.

The aid proposal from the Germany places some of the liability on GM, whereas GM wants the government to assume the risk, the person said. Plus, the German proposal only offered aid if the Magna group controlled Opel, the person said.

At a Friday board meeting, CEO Fritz Henderson and the new GM board found those terms unacceptable. They dispatched Smith to negotiate with the German government and ask it to provide financing for an RHJ deal, the person said.

The person said GM and Magna had worked out control of current patents and technology developed by Opel such as GM's global small and midsize car underpinnings. But the German aid package casts doubt on future control of such technology, the person said.

GM fears that its technology could fall into the hands of Russian automaker OAO GAZ, which would use it to compete with GM's Chevrolet brand in Russia. GAZ has ties to Magna and Sberbank.

Raising the issue of Opel's potential insolvency could put German Chancellor Angela Merkel in a tough position weeks ahead of the Sept. 27 German parliamentary elections. Her government has recently thrown its full weight behind Magna to save jobs and does not have a viable backup plan.

Economy Minister Karl-Theodor von Guttenberg, who openly opposed the Magna deal as too expensive when it was announced, said it remains the government's best option.

"We still have the impression that GM is interested in finding an investor," Guttenberg told ARD public television Tuesday. "The German government has made its preference in this question clear. Negotiations are continuing in this direction."

Opel workers also largely backed Magna's plan and voiced intentions to pool funds to buy a stake in an independent company. The workers Tuesday retracted an offer to sacrifice vacation pay to help the struggling automaker, in protest at GM's indecision.

Under an arrangement 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, with GM holding the remaining 35 per cent.


Auto Writer Tom Krisher reported from Detroit.

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