GM said to be ready to deliver decision on Opel

ERJ staff report (AN)

DETROIT/FRANKFURT (Reuters) -- General Motors Co. shook up its management and dispatched a negotiator on the sale of its Opel unit to Berlin after a watershed two-day board meeting under the direction of Chairman Ed Whitacre, people familiar with the proceedings said.

GM's 13-member board endorsed the departure of GM's chief financial officer, a new marketing campaign aimed at winning back skeptical U.S. consumers and a still-sealed decision on Opel that will be conveyed to German officials on Thursday, the sources said.

As part of the board review, CFO Ray Young, 47, will leave the automaker after an 18-month stint that included a failed effort to avoid bankruptcy, according to the sources, who were not authorized to discuss the situation.

Meanwhile, John Smith, the GM executive who has headed months of negotiations with the German government and two potential bidders for GM's Opel unit, was on his way to Berlin, the sources said.

Smith will brief the German trust supervising Opel and German government officials before news conferences scheduled for Thursday in Germany, the sources said.

Weighty decision

It was not immediately clear what action the GM board had taken on Opel after spending the past month weighing the merits of selling the European unit against the cost of keeping it.

A group led by Canada's Magna International Inc., North America's largest parts supplier, has a promise for the financial backing of the German government to take control of Opel.

Belgium's RHJ International has a rival bid that GM management has said would be easier to implement.

On Monday, financial adviser KPMG presented a report to GM's board that said the automaker's management had used "overly optimistic" assumptions when it prepared an earlier estimate of the cost of keeping Opel.

German labor and government officials ratcheted up the pressure on GM to take some action at this week's board meeting after directors deferred a decision last month.

Magna Chairman Frank Stronach said earlier on Wednesday that he expected a GM decision on Opel within the next few days or weeks.

Magna remains interested in Opel and would not try to buy other automakers if its bid fell through, Stronach said.

Repayment expected

The German government said earlier in the day that it expected GM to repay a 1.5 billion euro ($2.2 billion) state loan if the automaker called off the Opel sale.

KPMG said GM would need up to $6.1 billion in cash to keep Opel, more than the $4.65 billion it had estimated as late as June, according to a copy of the report presented to the board at the meeting in Detroit.

Opel's fate has become a hot-button political issue in Germany ahead of elections looming at the end of the month since some 25,000 jobs in Germany depend on the GM unit.

Analysts say GM faced a dilemma with Opel since any of the choices carried risks for an automaker struggling to turn itself around under the majority ownership of the U.S. government.

Selling to Magna, as urged by the German government, was seen by some GM executives as risking key small car technology and an edge in the fast-growing Russian auto market, people familiar with the deliberations have said.

The Magna plan involves an equity stake in Opel for Russia's Sberbank and a partnership with the Russian automaker GAZ Group.

European losses

On the other hand, GM's European operations lost $2.8 billion in 2008 and the long-running debate over Opel's fate in Europe has cost the U.S. automaker goodwill with organized labor and other stakeholders, analysts said.

The Magna deal is also the only one of the Opel options that could be quickly implemented, people familiar with the board deliberations said.

The meeting of GM's board was just the second time directors have met after the automaker emerged from bankruptcy with $50 billion in U.S. government financing in July.

GM's corporate culture, recent financial missteps and the oversight of its previous board had all come in for sharp criticism during the U.S. government bailout of the automaker.

CEO Fritz Henderson, who took his post in late March when his predecessor Rick Wagoner was ousted by the Obama administration, has pledged to make the company less bureaucratic and faster-moving.

Young, a 23-year GM veteran, had ascended the ranks at the automaker as a financial manager and was part of a small team under Henderson charged with key decisions on strategy.

Marketing campaign

Bob Lutz, 77, a GM vice-chairman, is also a member of that committee after taking up the assignment of revamping the automaker's marketing efforts.

Lutz has said GM would take direct aim at rivals in upcoming ads for its Chevy, Buick, Cadillac and GMC brands in order to challenge consumer perceptions that its vehicles lag on quality or fuel economy.

Part of the GM board meeting this week was devoted to reviewing those plans for the new harder-edged marketing campaign, one person briefed on the discussions said.

Whitacre will be the focus of corporate-focused ads kicking off the campaign, people familiar with the plan told Automotive News.

GM's U.S. sales have plunged 35 percent through August, and it failed to gain as much as rivals from the U.S. government's cash- for-clunkers incentive program.

From Automotive News (A Crain publication)