Motors for Magna

General Motors has reportedly reached a tentative agreement with Canadian-Austrian car parts maker Magna International to purchase the carmaker’s European units.

General Motors (GM) has reportedly reached a tentative agreement with Canadian-Austrian car parts maker Magna International to purchase the carmaker’s European units.

The agreement was made between Magna and General Motors, according to news reports, but the deal will still need final approval from the German government, which will provide funding to the new owner.

German government officials including Chancellor Angela Merkel met late in the afternoon in Berlin on 29 May to discuss whether to approve the deal.

Magna emerged as the top bidder for GM Europe after its competitor Fiat reportedly shied away from the deal when it emerged on Thursday GM would need another £260m in short-term funding.

‘My gut feeling is that probably Fiat was the most realistic bid in that they probably had the most hard-headed approach to the situation and were prepared to be quite robust in its attempts to rationalise the situation,’ said Peter Wells, director of the Centre for Automotive Industry Research at the Cardiff Business School.

‘Whereas Magna had to make a more generous offer, perhaps by the virtue of the fact that it had slightly less pedigree in the industry, particularly as a manufacturer.’

While the details on the new agreement have yet to be released, it was reported over the past few days that Magna plans to inject between €500m (£436m) and €700m into Opel. While GM would not receive any of these funds, it would keep a 35 per cent stake in the company.

‘If Magna is not prepared to be quite as robust in its rationalisation approaches it may have to pay the price in the future,’ added Wells. ‘As much as politicians want to keep employment and keep factories open, as we’ve seen in so many cases in the past you can only resist the tide of economic change for so long.’

It is still unclear how this deal will affect the 25,000 workers employed by Opel in Germany and Vauxhall, the British brand of GM. Vauxhall employs 5,500 UK workers and has plants in Luton and Ellesmere Port.

Wells said if the Vauxhall plants were to close, it would be a significant blow for the UK car industry as a whole, but it wouldn’t be the first one and it is unlikely to be the last.

‘We have as a country survived these sorts of events in the past and I believe we have the resilience in terms of the diversity of our own automotive industry as a whole to recover from it, but the short-term impact is going to be quite significant in terms of employment and things such as balance of trade,’ he added.

‘We’re already running a trade deficit on car industry products and vehicles and this will only be worsened by these sorts of developments.’

The UK government has come under criticism over the past few days for not doing enough to protect jobs at the UK plants.

The British union Unite said the German government was doing a lot more to protect jobs for its country’s workers. The German government has offered billions of euros of state loan guarantees to the bidders, but the union claimed there is no comparable support from the UK government.

UK business secretary Lord Mandelson responded to criticism saying the government is making sure the future of Vauxhall is secured. He also said the UK government would provide funding to the new management, depending on its plans for Vauxhall.

‘The secretary of state has said he is fully committed to Vauxhall and getting to a solution that is going to work across Europe while including Vauxhall,’ said Lucy-Michael Sutton, spokeswoman for the Department for Business, Enterprise and Regulatory Reform (BERR).

‘Even Germany’s finance minister is saying it has to be an integrated solution. It’s got to work for GM Europe. It’s got to be commercially viable. It’s not just trying to save workers in Germany or a plant in Spain. It’s about making sure it is something that is going to work and that is going to keep as many jobs as possible.’

Sutton responded to media reports claiming that the business secretary would appeal to the competition authorities in Brussels if any deal favours Opel jobs over Vauxhall jobs here by saying ‘anything’s possible’.

‘At the moment we’re in talks and we’re working on making this work and that’s the important thing,’ she said.

Once the deal is set, Wells said there are a variety of creative options the government could consider to keep the Vauxhall plants open.

‘The government could acquire the plants and lease them back,’ he added. ‘So far, I have not heard much discussion about taking a more proactive and imaginative approach to resolving these issues.’

Wells said the government must rise above the immediate problem and look at strategic issues in the medium to longer term.

‘We should start to think about where to best put our resources,’ he added. ‘In particular, where should we decide to put our resources for a much more sustainable automotive industry – sustainable in the job sense and in terms of technologies for cleaner vehicles?

‘So far the key problem for the government is focused on the very short term, knee-jerk response to this crisis and has lost sight of the strategic issues in the long term.’

Siobhan Wagner