GM board to consider option of keeping Opel

gmGeneral Motors Co.’s board is considering all options for its German Opel unit, including rejecting two pending bids and keeping it as a wholly owned subsidiary, a person familiar with the discussions said.

The board yesterday reviewed bids from Brussels-based RHJ International SA and Aurora, Ontario-based Magna International Inc. without taking action. New GM directors, dominated by members who joined after a U.S.-backed bankruptcy, are also considering keeping or dissolving Opel, said the person, who didn’t want to be identified because the talks aren’t public.

Keeping Opel under GM would reverse six months of talks at the request of the German government asking the Detroit automaker to give up a majority stake to outside investors in exchange for loans it needed to survive. GM, which had run Opel since 1929, turned over control to a German-led trust when the company filed for U.S. bankruptcy protection in early June.

“GM is in a lot better shape than they were back in February,” said Rebecca Lindland, a forecaster at IHS Global Insight Inc. in Lexington, Massachusetts. “Maybe that gives them more confidence to reconsider the decision.”

The company cut $40 billion in debt during the 40-day court-sponsored reorganization and is slashing its eight U.S. brands to four, including selling off the Saab, Hummer and Saturn brands and shutting Pontiac.

No Decision

The new 13-member board had already held one meeting, on Aug. 4, without an Opel decision. The board opted not to take action again after a meeting yesterday, GM said in a statement.

Opel may still end up going to Magna, because its offer is supported by the German government.

German Chancellor Angela Merkel, faced with rising unemployment as national elections loom on Sept. 27, prefers the bid by Magna, believing it will secure more German jobs. Her government is seeking to protect employees of Ruesselsheim-based Opel as Germany emerges from its worst recession since World War II. GM Europe employs about 25,000 people in Germany.

Steffen Moritz, a spokesman for the German Economy Ministry reached by phone yesterday after business hours, had no immediate comment.

GM is weighing whether it still makes sense to give up control of Opel, a decision made before it successfully emerged from bankruptcy and conditions in Europe improved, two people familiar with the discussions said. A stake sale is still the more likely option, with insolvency the least favorable, said the people, who asked not to be identified because the deliberations aren’t public.

European stocks rose to a 10-month high this week in part because services in Germany and manufacturing in France unexpectedly expanded, signaling that the worst recession in six decades is easing.

Car Sales Rising

European vehicle sales have benefited this year from incentive plans to get motorists to turn in old models, similar to the “cash for clunkers” program that may boost U.S. sales in August to the highest this year.

Western European new-car registrations rose 5 percent to 1.22 million vehicles in July, the German automakers’ industry group, or VDA, said Aug. 14.

GM will ask Germany for more information about financing options, including funding for RHJ. The board hasn’t scheduled another meeting or set a deadline for a decision. The Detroit- based company will recommend its preference to the Opel Trust board, the panel assembled to decide Opel’s fate. That board includes two GM representatives and two representatives of Germany. A fifth, so-called neutral member does not have a vote.

Weighing Options

GM had expressed concerns that an earlier Magna bid would exploit GM’s intellectual property in Russia. Magna’s investment partner is Moscow-based OAO Sberbank. A competing bid from RHJ International was described as a “simpler proposal” by GM’s top negotiator.

“Keeping Opel would give GM one less headache when it comes to platform management,” said Michael Robinet, an analyst at CSM Worldwide Inc. in Northville, Michigan. GM shares designs for most of its small and mid-sized sedans with Opel and has said it needs to continue the cooperation to save money by sharing parts.

“It’s a possibility they would consider keeping it,” he said. “But it’s almost like GM has already started to live life post-Opel.”

The new GM has shown willingness to tear up plans and start over, Lindland said. GM this week said it decided to scrap a new Buick sport-utility vehicle after criticism from customers, the media and analysts. The reversal came only about a week after plans for the new model were announced.

“This is not the same GM it was before,” Lindland said. “That was the purpose of the bankruptcy and everything the government did — to create a new company that could make faster decisions.”

Source: Bloomberg

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