GM's plan for Opel will be similar to Magna's

ERJ staff report (AN)

Jamie Lareau, Automotive News.

Detroit, Michigan -- General Motors Co.'s restructuring plan for Opel will be similar to the plan Canadian supplier Magna International Inc. had for the company, a top GM executive said yesterday.

On Tuesday, GM reversed course and decided to keep its European Opel/Vauxhall unit. GM had been negotiating for months with Magna, Russian bank Sberbank and other Russian partners on a possible deal.

But GM concluded that an agreement would have been “complicated” to manage and possibly would have hindered GM's access to key Opel technologies, John Smith, GM's group vice president of corporate planning and alliances, said during a conference cal.

“We were working through it pretty successfully to get binding agreements, but what we would have been left with at final closing was a very complicated” arrangement, Smith said.

He added that without a guarantee that Opel would remain an important GM source for developing fuel-efficient technologies, GM would have been left with a “big hole” in its global plan.

Smith said GM can restructure Opel more cheaply than any investor could have, thus leaving Opel with less debt.

The new plan vs. old plan

GM will present its restructuring plan for Opel “very soon,” Smith said. The basis for the new plan is GM's European viability plan, which it outlined in the first quarter. GM estimates the cost of its restructuring plan to be about 3 billion euros, or about $4.43 billion

Smith gave no details but said GM's plan likely would resemble the plan that Magna and Sberbank had proposed for Opel.

GM will complete an internal review of its new restructuring plan for Opel “very soon” and then present the whole package to European governments and labor unions, Smith said.

Under Magna's plan, Opel's work force would have been cut by a fifth, from the current 50,000. Smith hinted that under GM there would also be about 10,000 jobs cut.

Under the Magna plan, the remaining work force was supposed to get a 10 percent stake in the new company in return for about $390 million in annual cost concessions. GM would have kept a 35 percent stake in the unit under the plan.

Repaying the Germans

GM's decision is a setback for German Chancellor Angela Merkel because it raised the risk of conflict with Opel's European unions and left open the question of how GM would finance its plan to go it alone by restructuring Opel.

Smith insisted GM will maintain a good relationship with the German government and labor unions. He cited GM's long presence in Germany and its contributions to the German economy.

But Germany's government had lobbied hard for the Magna deal. On Tuesday night Germany's economic minister said GM should repay 1.5 billion ($2.2 billion) in bridge financing extended by German state banks.

“Opel itself has been performing ahead of plan, and that has contributed to a healthy cash balance,” Smith said. “If we're requested to do so by the German government, we can and we will repay the bridge financing.”

Smith said GM has been paying down the loans and has an outstanding balance of about $1.33 billion.

“Opel is important to General Motors and GM is important to Opel,” Smith said. “This was fundamentally a strategy call by General Motors.”

From Automotive News (A Crain publication)