Luton van plant in danger as GM sells out to Magna

General Motors is selling its European business to Magna International in a €5bn (£4.4bn) deal that could secure Vauxhall's plant at Ellesmere Port but leaves a question mark over its Luton van factory.

The decision was announced yesterday after nearly six months of wrangling as the British and German governments fought to save jobs at the Vauxhall and Opel factories in return for money to lubricate the deal.

Under the terms now agreed, the Canadian car parts maker Magna and Russia's state-owned Sberbank will own 55 per cent of the new company, the US parent group will retain 35 per cent and the remaining 10 per cent will be held by employees.

Only €500m will be put up by the buyer – €450m on closing the deal and another €50m in convertible loans. The remaining €4.5bn will be provided as loans from German state banks guaranteed by the Berlin government, which it will attempt to syndicate to other European countries that are home to the company's factories.

John Smith, GM's lead negotiator, yesterday confirmed that Vauxhall's Ellesmere Port factory in Cheshire had been saved. "It will continue to be busy for a long time to come because it has always been a high-performing plant and also represents an important currency hedge between the pound and the euro," Mr Smith said.

But the future of Vauxhall's Luton van plant and its 1,400 staff is less certain. Mr Smith stressed the parent company "very much wants to continue" the joint venture with Renault under which Luton runs. But Vauxhall's French partner is considering the contract's change of control provisions.

The future of the plant will be a factor in determining the financial contribution of the British Government. "We expect government-to-government discussions are taking place because Luton employment is important to the UK and it will figure in conversations about how much participation the UK Government will consider in the deal's debt syndication," Mr Smith said. The trade unions yesterday increased the pressure on ministers to save jobs.

Tony Woodley, the joint general- secretary of Unite, said: "We expect financial support from the UK Government for Magna to be dependent on the job and plant commitments given by the company."

Magna's success met a muted response at Vauxhall. "This is good news because there is a decision, but there is still the uncertainty until we see what the strategy is," a source at the company said. "The worry is that this is a very German-centric decision, which smacks of protectionism of jobs in Germany, and is politically rather than commercial motivated. That is the feeling of people here."

Magna was chosen over rival RHJ International, a holding company of the US private equity group Ripplewood. Although Magna was an early favourite, disagreements with the parent company over intellectual property issues and access to the lucrative Russian car market pushed it into second place behind RHJ later in the summer.

But the German government, facing a general election at the end of this month, backed Magna from the start, thanks to guarantees that it would save all Opel's German plants. And Berlin turned up the pressure on General Motors last month with the pledge of €4.5bn for the Magna deal, while refusing the same offer for RHJ.

Mr Smith said the board had concluded that Magna "really is the best solution", pointing to Magna's close links to the Russian government and the support from Berlin as key benefits. He insisted RHJ was "in it to the bitter end", adding: "RHJ had a very attractive proposal. They were very tenacious and really good to work with."

A final contract is expected to be signed before the end of November, once Magna's plans for restructuring are signed off by the unions and the financing package from the German government is finalised.