GM sale U-turn 'pleasant surprise' for Vauxhall

Decision to drop Magna provokes ire in Germany / But Mandelson ready to put money up for viable plan

GM's U-turn over the fate of its European arm had German politicians spitting chips yesterday, but the Business Secretary, Lord Mandelson, called it "a pleasant surprise for workers" at Vauxhall in the UK.

Germany's economics minister Rainer Brüderle called GM's conduct in backing out of the deal with Magna International and Russia's Sberbank as "completely unacceptable" and said GM would be asked to repay May's €1.5bn bridging loan. There were also threats of strikes from German unions.

In the UK, the decision was met with "delight" from the unions and optimism from staff. A source at Vauxhall said: "People trust GM more, we know the way the company works already."

GM's restructuring plan – which is though to have a €3bn (£2.7bn) price tag, some €1.5bn lower than Magna's – will now be discussed with European governments with a view to raising the necessary state aid. Under the Magna plan, Germany pledged €4.5bn of support – of which an unspecified amount thought to be around £400m was expected from the UK Government.

Lord Mandelson had "constructive" discussions with both Mr Brüderle and GM chief executive Fritz Henderson yesterday, and is prepared to offer financial support provided GM's restructuring plan makes sense.

John Smith, a vice-president at GM Group, said GM's plan for GME, which includes Opel and Vauxhall, will be much the same as that proposed by Magna/Sberbank because both are based on the viability plan originally developed by the parent company.

GM's restructuring is likely to include redundancies of a similar order to the 10,000 job cuts proposed by Magna. But Mr Smith would not be drawn on factory closures. "There is very little daylight between what Magna or GM is proposing," Mr Smith said. "The plans are not identical but they are similar. There are not very many plant-by-plant differences."

Sources claim the viability plan moots the closure of Bochum and Eisernach in Germany and Antwerp in Belgium. Mr Smith implied yesterday that GM may have "subsequently found an interesting plan" for Bochum. But GME's 5,500 Vauxhall workers in the UK are optimistic because the plan is thought to include plans for Ellesmere Port to expand from two shifts to three.

Mr Smith said GM's volte-face was "fundamentally a strategy call". "We reached the conclusion that GM has the means and the capability to restructure the company, and that it was in the best interests of Opel and GM."

But there were also significant shortcomings in the Magna deal, including strategic differences between the two companies that raised concerns over the longer-term relationship. Magna's plans for the Russian market were also thought to be insufficiently robust.

Garel Rhys at Cardiff Business School's Centre for Automotive Industry Research says GM's change of heart is a good result for the UK and also for GM. Even the German government has less to cavil about than the political soap-boxing suggests. Given Europe's stringent competition rules, Germany's efforts to secure domestic jobs were never likely to go unchallenged. But the deal lived long enough to win points with German voters in the run-up to last month's election.

"Europe's Competition Commission plays hardball with the motor industry so the end result of GM's decision will not be that different for Germany," Professor Rhys said. "The U-turn may be a minor irritation and produce some short-term embarrassment, but the German government achieved the objective, which was to win an election."

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