GM will cut jobs in Opel strategy

November 5, 2009

GM will cut jobs in Opel strategy

Restructuring is expected to trim 20% of 50,000 workers

Detroit News Washington Bureau

Washington — General Motors Co. said Wednesday some 10,000 European jobs will be sacrificed at its money-losing Adam Opel GmbH unit, which the automaker decided this week to keep, rather than sell to Canada’s Magna International Inc. and its Russian partner, Sberbank.

The job loss, about 20 percent of the unit’s 50,000 European workers, is comparable to the number that Magna would have cut as part of a 30 percent structural cost reduction at Opel.

John Smith, GM’s group vice president for corporate planning and alliances, told reporters on a conference call Wednesday that the GM board’s surprise decision Tuesday to keep Opel and Vauxhall was a close call, and came after three months of review. It had essentially been a "coin toss," he said.

"This has been a close call all the way," Smith said, adding that it was the single biggest strategic decision that GM’s new, 13-member board had to make.

The board "has come to understand the role Opel plays in our global product development," he said. "They reached the conclusion that Opel is important to GM and GM is important to Opel. We have the means and capability to restructure the company on our own."

The board based its decision, in part, on an improved business environment in Europe and GM’s overall financial health and stability since it emerged from bankruptcy court after receiving about $50 billion in U.S. government aid.

Opel and its British Vauxhall operations are key parts of GM’s global product development system and account for the bulk of GM European sales.

GM plans to continue with a restructuring plan "similar" to what Magna, a Canadian auto supplier, had planned if it had purchased the unit, Smith said.

If European leaders and government officials liked the Magna turnaround plan, he said, "I believe they will like the GM plan."

Nonetheless, labor unions and the German government sharply criticized GM’s plan to keep Opel.

The Opel sales arrangement — GM would have retained a minority stake — raised questions about GM’s long-term access to European-designed technologies.

Opel has been key to developing smaller, fuel-efficient engines and models globally for GM.

GM had repaid $879 million of the $2.2 billion loaned by the German government and will repay the rest if asked, Smith said.

Opel, he said, has a healthy cash balance.

The German government has provided $2.1 billion in emergency aid and had agreed to provide more than $6 billion in loan guarantees for a deal.

German officials had expressed a strong preference for a sale to Magna.

Under the deal with Magna and Sberbank, they would each have gotten a 27.5 percent stake in Opel, which is based in Ruesselsheim. GM would have kept 35 percent, and employees would have received 10 percent.

Now that the deal has been rejected, GM plans to incur about $4.4 billion in restructuring expenses, which is much less than amounts proposed by other Opel bidders, GM said Tuesday.

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