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Germany Picks Magna to Buy Opel; 11,000 Jobs May Go

May 30 -- German Chancellor Angela Merkel’s government chose Magna International Inc. as the buyer for General Motors Corp.’s Opel and confirmed a financing plan aimed at helping the money-losing unit avert insolvency.


Magna, the Canadian car-parts maker that’s competing with Fiat SpA in its bid for Opel, will invest in the Russelsheim, Germany-based carmaker, Finance Minister Peer Steinbrueck said at 2:13 a.m. in Berlin after a meeting with leaders including Merkel. Germany will provide a 1.5 billion-euro ($2.1 billion) loan to keep Opel afloat. Officials said as many as 11,000 jobs may be lost across Europe, including 2,600 in Germany.

“You can be sure that we didn’t take the decision lightly. All the federal and state representatives are aware that there are some risks,” Steinbrueck told reporters. “We have a high interest in maintaining employment at all four Opel sites.”

GM is selling a majority stake in Opel, including the Vauxhall brand in the U.K., as part of a global reorganization before a U.S. government-imposed June 1 deadline to restructure. Germany, which led the search for an investor, has a say because of the Detroit carmaker’s request for loan guarantees. Opel will be placed under a trust later today, shielding it from a probable GM bankruptcy next week.

Merkel, facing national elections on Sept. 27, is under pressure from lawmakers and labor unions to save the 25,000 German Opel jobs out of GM Europe’s 55,000 positions.

Cash Assistance

“If an agreement isn’t reached, Opel has no choice but to file for insolvency,” Juergen Reinholz, economy minister of Thuringia, said in an interview before the meeting. His is one of the four states where Opel has assembly plants. Reinholz took part in negotiations that stalled earlier this week after Germany balked at GM’s demand for immediate cash assistance.

Of the 1.5 billion euros in short-term loans, GM wants an upfront payment of 450 million euros from Germany to keep Opel operating, GM CEO Fritz Henderson said in a May 28 interview. That’s 350 million euros more than the German government had anticipated, he said.

Today’s decision wasn’t unanimous. Economy Minister Karl- Theodor zu Guttenberg, who led the talks and had considered an “orderly” insolvency for Opel, said he would have chosen a different solution because of the financial risks to taxpayers associated with Magna.

Strained Relations

Merkel said that Opel had to be rescued and blamed “great mismanagement” at GM for the unit’s troubles. She said she spoke with President Barack Obama yesterday and that German-U.S. relations had been put under strain by the Opel situation.

“In this crisis, the state has to help more strongly than it normally does,” the chancellor said in a statement today. “But we’re only doing this on the premise that the state knows it’s not the better entrepreneur.”

Remaining issues concerning the agreement with Magna should be resolved by tomorrow, she said.

Aurora, Ontario-based Magna will advance 300 million euros in cash to Opel on June 2, Co-Chief Executive Office Siegfried Wolf said an interview after the announcement. He said that he expects a final contract with GM within four to five weeks.

“Opel is rescued for now,” GM Europe President Carl-Peter Forster said.

Russian Backers

German state leaders and labor representatives have said repeatedly since bids were submitted on May 20 that they favor Magna’s offer, which includes as much as 700 million euros in investments in partnership with Russia’s OAO Sberbank. The plan also foresees a linkup with OAO GAZ, which said today it could produce 180,000 Opel cars a year at its main Russian site.

Fiat made a non-cash bid that would contribute factories and assets from its own carmaking operations.

IG Metall, Germany’s largest union, plans to begin talks with Magna “as soon as possible” to limit job cuts and keep plants open, Oliver Burkhard, an official of the group, said in a statement.

About 2,600 workers may go in Germany, though none of the factories there will close entirely, government officials said today at a briefing in Berlin. Another 7,500 to 8,500 posts are likely to be lost elsewhere in Europe, they said, declining to give details. Opel also operates assembly plants in countries including the U.K., Spain, Poland and Belgium.

Vauxhall Assurance

U.K. Business Secretary Peter Mandelson said in a statement today that Magna had explained its proposals to him and made clear that production at Vauxhall would continue. He said he’ll seek a “cast-iron guarantee” of that as soon as the current talks between the Canadian company and GM have been completed, and that Britain will provide its fair share of support.

The future of Opel’s plant in Antwerp, Belgium, will be discussed with Magna and the German government in coming weeks, Flemish regional government leader Kris Peeters said today, according to the Belga news agency. Peeters repeated an offer of 500 million euros in aid for Opel, Belga reported.

The Magna plan calls for 4.5 billion euros in loan guarantees to be borne by the German federal and regional governments and valid for up to five years, the officials said.

Magna, founded by Chairman Frank Stronach, has 326 manufacturing sites, engineering centers and sales offices across North America, South America, Asia and Europe that employ about 82,000 people, according to the company’s Web site. About 14 percent of its $23.7 billion in sales last year came from assembling complete cars and trucks.

Ownership Split

The Canadian company would own 20 percent of Opel and Moscow-based Sberbank, Russia’s biggest lender, would have a 35 percent stake. GM would retain 35 percent and Opel workers would have 10 percent.

Sberbank is interested in the deal because it will bring access to new technologies at a “fairly low” price, Chief Executive Officer German Gref said today.

“Such an asset will make it possible to restructure the automobile industry in Russia,” Gref said in an interview broadcast on Vesti-24 state television.

OAO GAZ, described as an “industrial partner” in the Magna-Sberbank bid, would require up to nine months to retool its plant in Nizhny Novgorod to produce Opel models, Deputy Chief Executive Officer Elena Matveyeva said today in a telephone interview.

GAZ is owned by Oleg Deripaska, the Russian billionaire who invested $1.54 billion in Magna in May 2007 before the deal collapsed in October after BNP Paribas SA called in a loan amid tightening credit markets. Building Opel cars would utilize capacity previously intended for Chrysler LLC’s Siber sedan, based on a version of the U.S. automaker’s Sebring.

Fiat Focus

Fiat CEO Sergio Marchionne said he was perplexed by Opel’s cash needs and that financing Opel on an interim basis would lead to unnecessary risks. He decided not to attend the overnight meeting in Berlin and instead left for North America.

“This process is taking on the air of a Brazilian soap opera,” Marchionne said during a conference in Montreal, adding that the Turin-based automaker will focus on completing the purchase of a stake in Chrysler.

Fiat Chairman Luca Cordero di Montezemolo “respects” Germany’s decision to choose Magna, he told reporters today in Trento, Italy.

The Italian company’s bid, which also includes GM operations in Latin America, is part of Marchionne’s plan to create a global automaker in combination with Chrysler.

Saab Concern

Fiat still wants to buy Opel and is “very much interested” in its Latin American operations, Marchionne said. A purchase of the U.S. company’s Saab Automobile unit in Sweden, while possible, is less likely if Fiat can’t buy Opel because the two GM brands share many parts, the CEO said.

Saab, which received protection from creditors in February, yesterday won a three-month extension to reorganize, giving it more time to complete a sale and reach a debt- reduction agreement with creditors.

Germany’s federal government agreed to provide half of the 1.5 billion-euro German backing that GM has sought for Opel, with the remainder split among the four states.

Opel, founded in 1862 by Adam Opel, started out making sewing machines and bicycles before going on to produce cars, including its “Laubfrosch,” or tree frog, model. GM purchased 80 percent of Opel in 1929 during the last economic crisis, after asset prices plunged worldwide. Two years later, GM bought the rest of Opel, establishing itself as the biggest carmaker in Europe through the 1930s.

GM, the world’s largest automaker until its 77-year reign ended last year, will file for bankruptcy on June 1 and sell most of its assets to a new company, people familiar with its plan said May 28.

That makes German workers keen to see a government trust. Employees have a say in Opel’s sale because GM’s business plan calls for $1.2 billion in concessions from European workers.

Article Link:Germany Picks Magna to Buy Opel; 11,000 Jobs May Go (Update2) - Bloomberg.com
 
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