Fight looms over German state aid to Magna-led Opel

ERJ staff report (AN)

Frankfurt / Brussels (Reuters) -- Magna International Inc.'s plan to buy Opel from General Motors Co. faces more hurdles after scrutiny of German state aid to sweeten the deal intensified and labor leaders demanded a veto over job cuts.

The skirmishing on two fronts posed headaches for Canadian supplier Magna and its Russian allies in what has become a politically fraught deal to build money-losing Opel into a power on global car markets.

Former Belgian Prime Minister Guy Verhofstadt said he had asked European Commission President Jose Manuel Barroso to ensure that the deal did not favor Germany over other countries such as Belgium and Britain that also host GM plants.

The issue will come up on Monday when the European Parliament debates the Opel transaction at the request of Verhofstadt, the leader of the Liberals who make up the third-largest group in the EU assembly.

EU Competition Commissioner Neelie Kroes and Industry Commissioner Verheugen will attend.

Against rules

"Financial aid given by a country that guarantees that the factories in their country don't close is against EU rules," Verhofstadt said. He said the European Commission rather than Germany should have run the Opel negotiations.

GM agreed this week to sell a 55 percent stake in Opel to Magna and Russian state lender Sberbank, finally bowing to Berlin's wishes after months of intense talks.

GM's decision to pick Magna over rival RHJ International, a Belgian financial investor, was a political boon to Chancellor Angela Merkel ahead of an election on Sept. 27. Merkel had backed Magna's bid and promised state aid to clinch it.

Germany is putting up 4.5 billion euros ($6.57 billion) in state guarantees to grease a deal it hopes will preserve jobs in Germany, where half of Opel's workforce is based.

Magna's original plan called for cutting around 10,000 of Opel's 50,000 workers, with 2,500 cuts earmarked in Germany.

But German magazine Der Spiegel reported on Saturday that in fact Magna planned to cut 3,000 assembly line jobs and another 1,100 white-collar posts in Germany.

German Economy Minister Karl-Theodor zu Guttenberg lent weight to the report, telling the Bild am Sonntag newspaper he expected more job cuts than those already announced, probably mostly in the company's administrative departments.

Labour clash looms

That sets up a clash with Opel labor, which opposes any forced layoffs or plant closures in Europe.

Magna has said it could close the Antwerp plant in Belgium and the Luton factory in Britain if it has no luck in luring new contracts to make use of their capacities.

Der Spiegel said the European Commission has discovered that the Antwerp plant works more efficiently than the Bochum factory in Germany, which would make it hard to justify saving the German plant if Antwerp gets axed.

Bochum works council head Rainer Einenkel told the Welt am Sonntag paper that Opel workers, set to take a 10 percent stake in the new Opel, would insist on a big say in how things run.

"We are prepared to make a contribution worth more than a billion euros. We are demanding in return a veto right over job cuts, transfer of production or plant closures," he said.

This stance had been agreed with other Opel labor leaders and would be in line with the influence labor has at Germany's Volkswagen AG, Europe's biggest carmaker, he said.

Magna could not be reached immediately for comment.

Wennemer warning

Charges that the Magna deal was driven more by politics than business logic continued to reverberate in Berlin.

"The sale to Magna is exactly the kind of aggressive industrial policy that has always been criticized in Germany, and rightly so," Dirk Pfeil, a Free Democrat politician who represented German states as a trustee overseeing the Opel deal, told the Bild newspaper.

Pfeil broke a standoff by abstaining on Thursday when the trust holding a 65 percent Opel stake approved the sale to Magna.

Pfeil noted that the Magna plan calls for 1.3 billion euros more in state aid than did RHJ's offer and was bound to run into trouble with the EU.

Manfred Wennemer, the former CEO of automotive supplier Continental AG who was the only Opel Trust board member to vote against a deal with Magna, was pessimistic that Opel's business could turn around quickly.

"Opel is losing millions every year. They're not going to stop that so easily," Wennemer told Reuters on Friday.

Other European countries including Britain, Belgium and Spain are expected to contribute to the aid, but amounts are not set while they await details of where plants and jobs will go.

"We'll make a decision (on the timing) once we have further details," a spokesman for Spain's industry ministry said. Austria has said it has no plans to give more than the 300 million euros granted under the country's guarantees scheme.

Polish Prime Minister Donald Tusk said on Friday he expects Opel's new investors to keep open its factory in Poland despite concerns its production could be moved to Russia.

In Brussels, the European Commission said Opel aid must comply with EU internal market rules and not have any geographical conditions tied to its restructuring.

From Automotive News (A Crain publication)