GM plans swingeing job cuts if EU blocks sale of Vauxhall

Fears are growing that General Motors is planning swingeing job cuts throughout its European operations if lawmakers in Brussels block its sale of GM Europe (GME) to a consortium led by Magna International.

Sources close to Vauxhall dismissed as "pure speculation" claims that the proposed sale of GME – including Opel in Germany and Vauxhall in the UK – to Magna, the Canadian car parts maker, might fall though as a result of pressure from the European Commission.

However, it is understood that GM will not seek to return to previously canvassed buyers such as Fiat and the private equity group RHJ International if the Magna deal does falter. Instead, a "plan B" under which the US parent group would retain ownership of GME is being rumoured – with closures and sackings far more painful than any so far planned by Magna. The German arm of Opel is thought to be most vulnerable to such a turn of events, but it could also mean bad news for Vauxhall workers at Luton and Ellesmere Port.

Vauxhall sources indicated yesterday that the Magna deal was still being worked on, and it had always been the case that the EC would need to review the terms of the GM/Magna memorandum of understanding before a final sale was agreed. Further, no deal can be done without finance – which means German money. Despite hints of imminent concord, a GM/Magna memorandum has not been signed.

The Magna deal has caught the eye of the EU competition commissioner, Neelie Kroes, who said at the weekend that there were "significant indications" that Germany had made its €4.5bn (£4.1bn) in aid for Opel conditional on Magna winning. Magna has offered to guarantee keeping Opel's four German plants open, and limiting job cuts, though these are still thought to run to 4,000 of the 25,000 Opel staff.

The UK Government is also thought to have offered loan guarantees of about €400m. Both Vauxhall plants would be kept open under Magna, with 600 voluntary redundancies. If Magna's plan is found to be contingent and favour German and possibly British interests ahead of other EU states, it will be blocked. Gunter Verheugen, the industry commissioner, said: "Time is what we have least of in connection with Opel and GM in Europe."

Last week, Mrs Kroes wrote to the German Economics Minister, Karl-Theodor zu Guttenberg, urging that GM "should have the opportunity to reconsider the bidding process". The EC seems to want a formal but clear assurance from Berlin that state aid would be available to other investors on a similar basis as the Magna arrangement.

Spanish unions have objected to any potential cuts at Opel's Zaragoza plant. The Belgian government has also complained to the commission about the threat to GME's Antwerp factory. Lord Mandelson, the Business Secretary, talked about referring the deal before he and the unions reached an agreement on jobs with Magna last week.

Chris Preuss, GM's vice-president for communications, admitted recently: "We can't close a deal if we don't have the financing." He said that if the sale to Magna did not pass EU regulations, GM would have "no recourse but to reconsider the deal". He added: "Right now, though, we are working on a defined agreement with Magna and it's a complicated process. There are a lot of discussions ... between the German government and the EU."

If GM does keep its loss-making European unit, it may itself seek state aid and push Opel into receivership to restructure. Some observers have suggested that, in such a meltdown, the UK Vauxhall division of GM – the company's biggest European brand – could be retained and Opel broken up. Under the Magna deal, the Canadian parts maker and its Russian allies, Gaz Auto and Sberbank, would own 55 per cent of Opel/Vauxhall, the workforce 10 per cent and GM 35 per cent.