GM Board Decides Not to Sell Opel

The General Motors (GM) board of directors voted late yesterday to not sell a controlling interest in German automaker Opel AG to a Russian-backed venture with Canadian supplier Magna, according to several reports and a release by the automaker. Instead of divesting itself of the brand, GM will instead commence an earnest restructuring of the automaker. "GM will soon present its restructuring plan to Germany and other governments and hopes for its favorable consideration," said Fritz Henderson, president and CEO, in a statement. "We understand the complexity and length of this issue has been draining for all involved. However, from the outset, our goal has been to secure the best long term solution for our customers, employee, suppliers, and dealers, which is reflected in the decision reached today. This was deemed to be the most stable and least costly approach for securing Opel/Vauxhall's long-term future." The company has estimated that it will need to invest roughly 3 billion euro, which it says is much less than any of the bids submitted by the potential suitors who wanted a part of Opel. GM says that it will work with all the relevant European labour unions to negotiate plans to help guarantee Opel's viability. What GM did not relate was any mention of bankruptcy, but the release did suggest that bankruptcy was not what GM had mind for its European operation.

GM cited the improving global business situation since it emerged from bankruptcy as a main reason why it has decided not to sell Opel. "While strained, the business environment in Europe has improved," Henderson said. "At the same time, GM's overall financial health and stability have improved significantly over the past few months, giving us confidence that the European business can be successfully restructured. We are grateful for the hard work of the German and other EU governments in navigating this difficult economic period. We're also appreciative of the effort put forward by Magna and its partners in Russia in trying to reach an equitable agreement."

Outlook and Implications

The announcement that the deal was off was generally met with disappointment in Germany, where a year's worth of painstaking negotiations with labour unions, bridge financing from the German government, and heated debate between government stakeholders had led to the expectation that the Magna deal would be complete before the end of the year. Indeed, even GM's own executives had thought as recently as two weeks ago that the deal would be finalised soon, with Henderson even saying that he felt the best course of action for Opel would be divestiture to Magna. The move is also a setback for Magna, which had truly thought that it had found its way into becoming an automaker, long a goal of founder and CEO Frank Stronach, despite the fact that many automakers quietly said that if Magna did gain control of Opel that they would stop doing business with the Canadian megasupplier. Magna's executives were magnanimous in their statements following the announcement however. "We understand that the board concluded that it was in GM's best interests to retain Opel, which plays an important role within GM's global organization," Magna co-CEO Siegfried Wolf said in a statement. "We will continue to support Opel and GM in the challenges ahead and wish to thank everyone who supported the Opel restructuring process for their tireless efforts and dedication over the past several months."