GM scraps sale of Opel and Vauxhall to Magna

Surprise U-turn on deal to save European operations

The board of General Motors last night sensationally scrapped the sale of its European operations, which include Vauxhall in the UK, after months of tortuous negotiations with national governments and the European Union.

The sale to the Canadian car parts manufacturer Magna International, which had won the backing of the German and British governments, was no longer in the best interests of GM, now that the environment for car sales has started to improve, the board decided.

The unexpected U-turn came only hours after the workforce of the German-based part of the business, Opel, agreed to concessions worth €265m a year to help the deal go through. In Britain, the sale was going to cost 600 jobs, in voluntary redundancies at Vauxhall, but ministers and unions had celebrated a deal with Magna last month that protected workers from compulsory lay-offs.

The future of Vauxhall and Opel – together known as GM Europe – has now been thrown into confusion. Fritz Henderson, GM chief executive, said in a statement last night that negotiators would now have to start again as the Detroit-based company sought cost savings of its own and new loan guarantees from European governments.

"GM will soon present its restructuring plan to Germany and other governments and hopes for its favourable consideration," Mr Henderson said. "We understand the complexity and length of this issue has been draining for all involved. However, from the outset, our goal has been to secure the best long-term solution for our customers, employee, suppliers, and dealers, which is reflected in the decision reached today. This was deemed to be the most stable and least costly approach for securing Opel/Vauxhall's long-term future."

GM formally put GM Europe up for sale in May, but it had been marked as non-core for much longer, as the US company fought – and failed – to avoid bankruptcy. Magna emerged as the favoured bidder of the German government, which propped up Opel with promises of state aid and loan guarantees. The Canadian firm was going to take a 55 per cent stake, in partnership with Russia's Sberbank.

But the deal proved controversial and EU competition authorities asked GM to confirm it would make the same decision knowing that €4.5bn in guarantees promised by Germany would go to any buyer of Opel, not just Magna, Berlin's favoured bidder. A stunned Magna said last night that it had no immediate comment on the GM decision.