China's BAIC joins fight for Vauxhall parent GM Europe

Formal offer from Chinese takes on Ripplewood and Russian-backed Magna

The future of GM Europe (GME) could turn into a fight between the Chinese and the Russians after Beijing Automotive Industry Corporation (BAIC) made a formal offer for the distressed car maker.

The Chinese proposal – reportedly worth more than €650m (£556m) – takes the number of bids for the group, which includes Opel in Germany and Vauxhall in the UK, up to three.

The front-runner is still the Canadian parts manufacturer Magna International, backed by Russia's Sberbank and automaker Gaz, owned by Oleg Deripaska. The consortium signed a non-binding memorandum of understanding at the end of May, just days before the US parent went into Chapter 11 bankruptcy protection. GME is now doing due diligence on the Magna bid and the rejection or withdrawal of interest from Fiat and RHJ International – a holding company for the US buy-out group Ripplewood – had left Magna as the only serious contender.

But two weeks after it was initially rejected, RHJ International forced its way back into the running with a revised offer. Sources close to the negotiations suggest that the new plan is more favourable to GME's Opel manufacturing operations in Germany than the earlier proposal, and thus aims to secure support from Berlin.

The BAIC offer has not come out of the blue. But although the Chinese group did submit a statement of interest in May, the document was so brief and details so scant it was not subject to serious consideration.

There are few details about how the three bids differ, but key areas will include the proposed size of the buyer's equity stake, how much of the business will remain in GM's hands, and what financial sweeteners are needed.

The big political question is about jobs. Whoever buys GME, the business faces significant cuts to reduce surplus capacity. The majority of GME's manufacturing operations are in Germany and the UK. Both governments are closely involved in the takeover discussions because they are expected to put up either loans or loan guarantees to smooth the deal. And both are using their influence to try to secure the future of manufacturing jobs in their respective countries.

Lord Mandelson, the Business Secretary, yesterday confirmed his commitment to fight for jobs at Vauxhall's two UK factories, which employ around 5,000 people. "I want workers at both Luton and Ellesmere Port to know that we are doing everything possible to secure a long-term commercial future for Vauxhall," he said. "I and my officials are in constant contact with the US and German governments, GM and GME and others to ensure Britain's interests are fully represented."

But not all are optimistic that it is a fight he can win. Krish Bhaskar, chief executive of the Motor Industry Research Unit, says UK factories are a lost cause, regardless of who wins the bidding. "Neither Magna nor BAIC want GME for its manufacturing bases. They want the ready-made distribution, sales and dealership operations it provides in each European market," Professor Bhaskar said. "They don't want the factories, because they will do the manufacturing for themselves, in Russia or China."

Of the two, the Chinese offer is the biggest threat to UK – and European – manufacturing capacity, because it has the biggest existing operations, Professor Bhaskar says. "Gaz couldn't supply the European market fast enough, so it would be a long-term aim to gradually turn production off in Europe and build up its own. But BAIC could ramp up production within about 18 months to supply the EU distribution arm with all the models it needs."