Threat to jobs lifts for Vauxhall workers

GM's bondholder talks fail but German bailout is likely to save its European arm

Fears of thousands of job cuts at Vauxhall were receding last night as the German government brokered a much-needed loan to the car maker's European owner and the UK Government offered to step in if necessary.

Beleaguered US car giant General Motors (GM) has been in discussions for months with potential buyers of its European business, which owns Vauxhall in the UK and Opel in Germany.

The German government was expected to conclude negotiations of a bridging loan to Opel last night, to provide the division with enough money to keep going if the US parent company falls into administration as expected.

Vauxhall does not have the same cash problems as Opel, unless the German government loan is not agreed. Although the chances of the German deal failing are remote, Lord Mandelson, the Business Secretary, said he would not rule out a loan to the UK subsidiary. "I have always made clear to the Vauxhall management that if, whilst the question of ownership was being resolved, they needed help to tide them over, they could come to the Government," he said.

There are three bidders for GM Europe (GME): Fiat, the Italian car company; Magna, a Canadian components maker; and RHJ International, the Belgian arm of the US private equity group Ripplewood.

Trade unions have said sweeping job cuts for Vauxhall's 5000 British workers are possible, regardless of which bid is successful, as the new owner cuts capacity in line with the recession-hit world car markets.

But Lord Mandelson said all three bidders recognised the efficiency of the UK factories at Ellesmere Port and Luton, and are committed to Vauxhall's future: "The bidders have each assured me that Vauxhall provides a vital source of production and vital market share for GME and that they all see Vauxhall production in the UK continuing indefinitely."

But the government admits jobs could go in the shake-up. "GME suffers from overcapacity and excess costs and is supplying into a market that is going to take a long time to climb back to previous levels of demand," Lord Mandelson said. "We have to be realistic about that, whilst doing everything we can to safeguard Vauxhall's interest and its workforce in the UK."

The US parent company admitted yesterday that efforts to do a deal with its $27bn (£17bn) bondholders have failed and the company is expected to enter bankruptcy protection on Sunday. Assuming the bridging loan from the German government goes ahead, there is expected to be limited fall-out for GME. But it will add another element of urgency to discussions over its future. All three bids rely on government money from the UK and Germany, of amounts varying from £3bn to as much as £7bn.

With elections looming in Germany, there is pressure on the German government to use its position as the supplier of the lion's share of government money to buy the safety of its own country's factories. But the performance of Vauxhall's British factories makes a strong commercial case.

GME research puts Ellesmere Port in the top spot for efficiency, while the German plants at Bochum, Eisenach and Kaiserslautern languish down the table. The Merseyside factory is also geared up to be the first to produce the new model Astra from September.