German government, unions angry at GM

Automaker seeks to assuage fears over decision to keep Opel

German government and labor union leaders Wednesday blasted General Motors' decision to cancel the sale of a majority stake in its Opel division, but GM assured them that its own restructuring plan for Opel would closely resemble the one that would have been carried out if auto parts giant Magna International had taken control.

"If they liked the Magna plan, I think they will also like the GM plan," said John F. Smith, GM's group vice president for corporate planning and alliances.

But in Germany, the automaker's decision was seen as a blow to German Chancellor Angela Merkel, who had lobbied hard for the sale of Opel to Magna and its Russian partner Sberbank. In the run-up to German elections in late September, she had personally taken part in negotiations and pledged German government financial assistance in return for assurances that German jobs would be protected. Having spent most of Tuesday in Washington, she learned of GM's decision shortly before getting on a plane home, news agencies reported.

"The German government regrets the decision by the General Motors board of directors to restructure Opel on its own," the German government said in a statement. "This breaks off an investor process that was intensively conducted by all those involved, including GM, over a period of more than six months."

Earlier, Opel's labor leaders, after the assurances about jobs, had agreed to about $390 million a year in savings on the condition that Opel be sold to Magna. A top leader of Opel's union called the aftermath of GM's announcement "a black day."

The German government said it expected GM to repay a $2.2 billion bridge loan from the German government "on a timely basis in accordance with contractually agreed conditions."

GM's Smith said the automaker had already begun repaying the loan, and that only $1.35 billion remained. He said GM hoped that Germany would continue to support Opel's restructuring, which GM said would cost about $4.5 billion. But he added that GM had a "plan B" if necessary.

During a conference call, Smith said that there was "very little daylight" between the different restructuring plans for Opel and its sister brand Vauxhall in Britain, and that GM would soon present a plan to European governments that would cut costs by 30 percent and trim about 10,000 of the 50,000 jobs at Opel. He said GM might have a way to keep open one of three plants Magna had planned to close.

Magna executives said they were philosophical about losing the deal that had been ardently sought by the Ontario-based company's founder, Frank Stronach, a colorful immigrant from Austria. "We've valued our relationship with GM for more than 50 years," said Belinda Stronach, vice chairman of Magna and daughter of the founder. "While we were disappointed in hearing the news yesterday, we also respect the decision that the board made."

"The good news is we have extra cash," she added.

Stronach said that Magna, which had stressed opportunities for Opel in Russia, still believed that "there are great opportunities to expand within the Russian market."

Many analysts hailed GM's decision. "Some of the stuff they were building and selling elsewhere was using some of the technology from Opel and they would have lost that," said Marina Whitman, a former GM executive and economist who now teaches at the University of Michigan. "GM has, more and more, been becoming a global company and there would have been a big hole in the cheese."