Debt-crushed and nearly bankrupt General Motors, not so long ago one of the world’s biggest and most important companies, but now on the brink of collapse, has paved the way for its main European partners to break away as a separate company, transferring all its European factories and patents, free of debts, to a German subsidiary, and then a last-second deal was made with a Canadian-Russian coalition to save GM’s Opel operation.
Canadian car-parts manufacturer Magna International reached the deal to take over Germany’s Opel in a move aimed at rescuing GM’s European business from the US car giant’s anticipated insolvency. The agreement included a 1.5 billion Euro (USD 2.1 billion) bridging loan from the German government to prevent the troubled subsidiary from going bankrupt itself, as well as the carmaker’s placement in a trust and removal from under the GM umbrella. Magna also plans to keep all four of Opel’s German factories open.
The breakthrough came after more than six hours of negotiations through the night in Berlin with the German federal and state governments, GM and the US Treasury Department. “It’s a great relief for us,” said Klaus Franz, head of the works council representing 26,000 employees at Opel’s four German plants. “It was the correct decision for Magna to come aboard.”
The news was announced by German Finance Minister Peer Steinbrueck, who said Magna would make urgently needed financing available to Opel in the coming weeks while the German federal and state governments set the conditions for their bridge loan. Besides the loan, Berlin was also expected to provide 4.5 billion Euro in loan guarantees in the deal with Magna and its Russian partners Sberbank and carmaker GAZ.
“You can be certain that we did not come to this decision lightly,” Steinbrueck said, adding that the deal posed risks for all those involved. “But these risks were weighed against the risks associated with the possibility that Opel would become insolvent.” Economics Minister Karl-Theodor zu Guttenberg said he had reservations about the deal because of the financial risk to the government, but had agreed to go along with it.
The Berlin talks, hosted by German Chancellor Angela Merkel, were the second time that key government ministers met with GM and Magna last week as GM was widely expected to seek court protection from its creditors to conduct an extensive reorganisation. The lengthy talks had ended empty-handed after GM had announced an increased demand of up to 350 million Euro to keep its European operations afloat before a new owner could take over.
Opel’s second main bidder, Fiat, pulled out of the talks, saying GM’s new demand would leave the Italian carmaker “open to unnecessary and irrational risks.” Steinbrueck said the German government had stuck by its refusal to increase the pledged bridging loan.
Siegfried Wolf, co-chairman of Magna, said his company would hold talks with all countries where Opel has factories, adding that he was confident they would find ways to retain as many jobs as possible. The chief of GM’s European operations, Carl-Peter Forster, said Opel was rescued for now. “This is the beginning of a new future for Opel, its workers and the brand,” he said, adding that he did not foresee more financial demands from GM at the moment.
GM has pledged to transfer Vauxhall in Britain and other European GM subsidiaries to the Opel brand, based in Germany but owned by GM in Detroit, until a buyer is found. GM employs 55,000 workers in Europe. With national elections due in September, Merkel was anxious for a deal to save jobs in the German carmaker, which was taken over by GM 80 years ago. Magna, based both in Canada and Austria, employees 70,000 workers worldwide. It is the world’s third largest supplier of parts and also assembles complete vehicles.
Panic in Europe, pain in US
 That drama was playing out while another high-stakes game of near-panic developed in the European Union which could have pitted countries involved with GM operations against each other, in violation of strict rules that themselves seemed ready to be breached as countries scrambled to save their auto industries. Fears that Germany might be about to break European Union solidarity and propose a rescue for car maker Opel without considering other General Motors subsidiaries in Europe dominated the agenda as EU ministers met in Brussels. It was “decisive for member states to understand the various steps” which Germany is taking to help Opel, the country’s state secretary for the economy, Peter Hintze, said after the meeting. That was an answer to criticism from states which are home to other GM subsidiaries, such as Sweden (Saab) and Britain (Vauxhall) that Germany had not kept them informed of its plans for Opel. “We should all be informed. You can’t have a state-aid shop around Europe,” Maud Olofsson, Sweden’s minister for business and energy, said as the meeting opened. Those concerns “are not gone, but we have been very clear that everybody has to follow the rules,” she said after the talks.
Patricia Ceysens, the economy minister of the Belgian region of Flanders, which is home to a major Opel factory, insisted that any decision on the fate of individual plants would have to be based on business considerations, not political ones. Under new ownership, the European company is expected to continue making Opel and Vauxhall cars. The British government said it had “not ruled out” financial assistance to Opel, which has two plants in England employing 5,000 people. GM’s other European subsidiary, Saab Automobile, has already entered insolvency and is separately seeking a new owner. The Swedish company said it was confident it would not be affected by a GM bankruptcy. In the US, GM said its bondholders had refused a last-gasp compromise solution to settle their claims, making bankruptcy a virtual certainty. GM, the largest US auto manufacturer, said that its offer to swap bonds worth USD 27 billion dollars for a 10 percent share of equity was less than what bondholders wanted. The company’s board of directors were meeting to discuss their “next steps.”