General Motors has reversed course by abandoning a long-expected sale of its Opel to a group led by Canadian auto supplier Magna and opting to keep the European unit after a year of uncertainty and high-stakes political negotiations.
GM said improving business conditions and the strategic importance of Opel had prompted the unexpected move by its 13-member board of directors appointed in the wake of its own bankruptcy just four months ago.
The decision represented a setback for German Chancellor Angela Merkel, raised the risk of conflict with Opel's European unions and left open the question of how GM would finance its plan to go it alone by restructuring Opel.
The move also marked a startling shift in direction from the course for Opel endorsed by GM Chief Executive Fritz Henderson, who two weeks ago had said a sale of the European unit was the most likely outcome.
German's government had lobbied hard for the Magna deal and last night said it wanted GM to repay €1.5 billion in bridge financing extended by German state banks.
"The government regrets the decision of the General Motors board to restructure Opel itself and to keep it in the group," a government spokesman said.
GM said it expected that restructuring Opel on its own would cost about €3 billion, costs expected to cover job cuts and plant closures.
Senior GM executives were caught unaware by the move by the company's board.
The GM board decision to keep Opel comes after European Union officials challenged the terms of the funding Germany had pledged to support the sale of Opel to Magna.
Reuters