General Motors prepared to sell Opel to Magna

General Motors prepared to sell Opel to Magna
Photo: DPA
Chancellor Angela Merkel announced on Thursday that US car giant General Motors is prepared to sell its German unit Opel to the Canadian auto parts firm Magna after all.

She said GM’s board had conditionally agreed to hive off Opel following months of indecision about its future.

“I’m extremely pleased by this decision. Opel can now forge a new beginning,” she told a press conference in Berlin. “It won’t be easy. But this is a quantitative step towards ensuring Opel a certain future.”

Considered out of the running in recent days, the choice of Magna comes as a surprise even though the German government has long favoured its bid backed by Russia’s Sberbank.

“I believe the financial conditions were accepted by General Motors,” Merkel said, referring to the €4.5 billion in state guarantees Berlin offered to ease the sale to Magna.

Senior GM executives travelling to Berlin for talks with German officials had been expected to announce the US carmaker would hold onto Opel after a torturous period of uncertainty. But the decision to part ways with Opel will have major implications for its plants throughout Europe, making it politically sensitive, particularly in Germany, where general elections are scheduled for September 27.

Merkel said she would consult with her European counterparts regarding the deal with Magna.

Germany is home to 25,000 Opel workers, about half of GM’s total European workforce, which includes about 5,000 at British sister brand Vauxhall.

General Motors said Thursday it would keep 35 percent of the shares in its European Opel operations and sell 55 percent to the Canadian-Russian consortium. Employees would own 10 percent of what GM called the “New Opel” following its sale to Magna.

Several key issues still needed to be finalised, including the terms of a financing package provided by the German government, but the final documents should be ready for signing within a few weeks, and the deal should close within the next few months, according to a GM statement.

“Hard work over the past two weeks to clarify open issues and resolve details in the German financial package brought GM and its board of directors to recommend Magna/Sberbank,” GM chief executive Fritz Henderson said.

Unions had also signed an agreement that supported “the necessary cost restructuring,” he added.

Magna has said in the past that it would eliminate 10,000 European jobs after taking over Opel, but no figure was cited on Thursday.

End of an 80-year partnership

The sale of Opel by General Motors ends an 80-year union during which Opel became GM’s spearhead brand in Europe and a key research centre. The divorce is a consequence of bankruptcy for GM which is now fighting for a new future with US government money. But the two companies’ association was not always so desperate.

GM bought Opel in 1929, when the German company was mostly making bicycles – in which it claimed to be the world leader – and sewing machines, the original product manufactured by Adam Opel when he founded his company in 1862.

Opel began to make automobiles in 1898 and only eight years later it had produced its 1,000th vehicle, quite an exploit at the time. The group became the official supplier to Emperor Wilhelm II but its success was built on smaller models available to a wider public.

GM decided to focus on making automobiles under the Opel brand and placed the company at the forefront of its plans for European expansion. Using US methods, it ramped up assembly line production and quickly grew in size. Its small family Kadett car became a best-seller.

When World War II broke out, Opel produced Blitz (lightning) trucks for the German army and was later forced by the occupying Allied powers to switch to making refrigerators. Auto manufacturing did not really begin again until the 1950s.

Twelve years later, a new Kadett hit the market in a bid to compete with the Volkswagen Beetle. In the early 1970s, Opel held about 20 percent of the German market but was then surpassed by Volkswagen when Europe’s biggest car maker produced the Golf.

Opel has still not bounced back and attempts to diversify its product range with the top-shelf Omega or sporty Tigra models went badly. The company was also beset by problems with the quality of its cars.

In 2001, it began a deep restructuring programme and has managed to stay afloat owing to sales of its small Corsa and Astra models. It’s latest cars have been widely praised in auto circles for their design, but such critical acclaim failed to translate into adequate sales.

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