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General Motors drives Germany to despair

The decision to keep Opel and Vauxhall is good news for jobs in Britain but not for Germany

The directors of General Motors met for dinner last Monday in advance of an eagerly anticipated board meeting the following day. It was a chance for them to get to know one another.

The American government appointed an entirely new board after bailing out GM in the summer, and the people at the top of the world's second-biggest carmaker are still finding their way with the industry and each other.

There wasn't much time for chit-chat. New or not, the board had to make a historic decision - whether to cut GM's ties with Europe, and its claim to be a global car company, by selling Opel and Vauxhall.

Fritz Henderson, the chief executive, explained the deal, in which GM would sell a controlling stake to Magna, a car-parts maker, and Sberbank, a Russian financial institution, with the help of €4.5 billion (£4 billion) in loans from Germany and smaller contributions from Britain and Spain.

Henderson made no firm recommendation. After all, the board had approved the deal in principle and was expected to give the green light.

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Except it didn't. Immediately after the meeting, GM announced that it would keep Opel / Vauxhall, saying the business was now judged vital to product and technology development strategy.

The decision provoked fury in Germany, where the Magna plan had been supported because it promised fewer job losses. Henderson had to call Angela Merkel, the German chancellor, with the news - she was in Washington to see President Barack Obama.

The workforce of Opel in Germany, some 25,000, took to the streets within 48 hours. "The strikes beginning in Germany will be repeated across Europe," said Klaus Franz, head of the Opel works council in Germany. "The next move from General Motors will be to blackmail the governments and employees of Europe to finance their unworkable plans for restructuring Opel."

Others joined the attack. "This behaviour of General Motors shows the ugly face of unbridled capitalism," said Jürgen Rüttgers, governor of North Rhine Westphalia and a leading figure in the German government. The Opel factory at Bochum, in his state, is high on the list of possible closures with the loss of 5,000 jobs. Germany's bestselling newspaper, Bild Zeitung, described GM as "bullshitters".

The reaction of the British workforce was the opposite. Unions here gave GM's decision a warm reception, having always been nervous about Magna's commitment to the factories at Ellesmere Port on Merseyside and at Luton.

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"We want Vauxhall to be part of a giant global company, one that is now restructuring successfully thanks to Obama's intervention. It's far better to remain within the experienced GM group than be spun off to Magna," said Tony Woodley of the Unite trade union.

John Smith, the executive who has led the negotiations for GM, said the Magna deal had always been complex, with two investor groups rather than one.

It would have created "a very complicated and very energy-intensive relationship, not one that would necessarily have produced a good alignment between GM and Opel on things such as model development and purchasing, the big levers in this industry", he said.

Industry sources said GM's new board members were responsible for the u-turn, emphasising the role played by David Bonderman, the private-equity veteran who founded Texas Pacific Group, and fellow director Stephen Girsky, a former analyst at Morgan Stanley, the Wall Street bank.

GM is to produce its plan for Opel / Vauxhall within the next few weeks, and faces tricky negotiations with the German government. About 10,000 jobs are expected to go across Europe. Rainer Brüderle, Germany's economics minister, warned there would be no state aid unless GM presented a viable strategy within weeks .

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If GM returns to its original plan, two big German plants, Bochum and Eisenach, would be at risk, but a compromise is now expected, with one or both retained in return for financial support.

In Britain, Ellesmere Port has just started to produce the new Vauxhall and Opel Astra - it is the lead factory for the five-door version of GM's bestselling European model. It would be surprising if that changed during this model's six-year life but in the current climate no manufacturer is likely to give a commitment beyond that.

Last year, Carl-Peter Forster, the outgoing boss of Opel, did a deal with the British government. If the UK championed a concession on carbon-dioxide regulations at the European Commission, GM would put European production of the Vauxhall /Opel Ampera petrol-electric hybrid (which uses the same chassis platform as the Astra) at Ellesmere Port. The government gave its support, so it will be interesting to see if GM keeps its promise.

Luton makes the Vivaro van and the Trafic for Renault and will be safe until the end of 2012, when a new model and a renewal of the Renault contract are due.

Before the restructuring and sale process began, GM agreed that the new Meriva MPV would be built at its extensive facility in Zaragoza, Spain. Gliwice in Poland has the lowest costs of GM's European plants, so change there is unlikely.

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The likely loser is Antwerp in Belgium, which made the old Astra but was not allocated the new one. The best hope for the 3,300 staff was that Magna would transfer some contract manufacturing there.