Nov. 4 (Bloomberg) -- General Motors Co.’s board voted to keep its Opel unit rather than sell a majority stake to Magna International Inc. and partner OAO Sberbank, citing an improving economy and the brand’s strategic importance.

The decision sets aside an agreement to sell 55 percent of Ruesselsheim, Germany-based Adam Opel GmbH to Magna, Canada’s largest car-parts maker, and Sberbank, Russia’s biggest lender. GM expects about 3 billion euros ($4.42 billion) in expenses to restructure the money-losing unit and its U.K. twin Vauxhall.

Retaining ownership of Opel marks the second shift in GM’s post-bankruptcy plan for unloading unprofitable divisions. Detroit-based GM said Sept. 30 it would wind down the Saturn brand after a sales agreement with retailer Penske Automotive Group Inc. fell through.

“It’s the worst decision for GM,” Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen, told Bloomberg Television. Without the support of workers and Magna’s assistance in expanding in Russia, Opel will “have fewer chances to survive,” he said.

GM was given an opportunity to reconsider the Magna deal after the European Union expressed concerns that Germany had improperly influenced the choice of buyer. Germany told GM that financing wasn’t reserved only for Magna, prompting the review by the carmaker’s board.

Merkel Campaign

German Chancellor Angela Merkel had lobbied for the sale to Aurora, Ontario-based Magna since May, aiming to preserve jobs. GM notified Magna, Merkel and other European government officials before yesterday’s announcement, said a person familiar with the discussions.

“I have serious concerns about the future of the company and its jobs,” Roland Koch, prime minister of Hesse, Opel’s home state, said today in a statement, adding that he was “angry” about the decision.

Merkel was in Washington to give a speech to Congress and meet President Barack Obama at the White House, and her plane left for Berlin around the time of GM’s announcement.

The German government, in an e-mailed statement, called on GM to repay 1.5 billion euros that had been provided for Opel. The request to repay the loan by the end of November is according to the conditions of the loan, the government said.

Because of the aid payments that Opel has received so far, GM must submit a new restructuring plan demonstrating the unit’s viability, European Commission spokesman Jonathan Todd said today in Brussels.

Pay Demand

Klaus Franz, Opel’s top labor leader, said workers wouldn’t contribute to a GM-led restructuring and demanded the disbursement of deferred wages such as vacation pay.

“We will not actively engage in crafting a route back to General Motors, rather we will focus on our classic role of protecting the workforce,” Franz said in a statement.

Union official Harald Lieske at Opel’s Eisenach factory in Germany said plants may stage warning strikes tomorrow to protest the U-turn. GM spokeswoman Karin Kirchner said Opel faces insolvency without a restructuring agreement with unions.

GM’s continued control of Opel is a “gain in terms of lowering risk on technology and platforms,” said Michael Robinet, an analyst for consultant CSM Worldwide in Northville, Michigan. “But they lose in terms of exposure to a European market that next year could be somewhat weaker.”

GM had cited concern that selling Opel would give competitors access to vehicle designs that the Detroit-based automaker still planned to use after unloading a majority stake.

‘Magna Support’

“We will continue to support Opel and GM in the challenges ahead and wish to thank everyone who supported the Opel restructuring process,” Siegfried Wolf, Magna’s co-chief executive officer, said in a statement.

Fred Irwin, chairman of the trust created by the German government in June to supervise Opel, said in a statement that he hoped GM’s decision would lead to new business “stability” at the unit.

“GM will soon present its restructuring plan to Germany and other governments and hopes for its favorable consideration,” CEO Fritz Henderson said in a statement. That plan includes working with European labor unions “to develop a plan for meaningful contributions to Opel’s restructuring.”

The U.S. carmaker, which emerged from bankruptcy in July, wouldn’t have received any money from selling Opel.

RHJ Exit

GM directors accepted the Magna proposal in September even after executives called a competing bid from Brussels-based investment firm RHJ International SA “simpler.”

RHJ said in October it was no longer interested in purchasing Opel. RHJ said on Oct. 15 it agreed to buy U.K. private bank Kleinwort Benson from Commerzbank AG for 225 million pounds ($362 million).

Merkel’s government would have backed Magna’s investment with 4.5 billion euros in loans, including 1.5 billion euros already provided to keep Opel solvent when its U.S. parent sought protection from creditors June 1.

When GM said it had chosen Magna on Sept. 10, Merkel said her “patience and persistence” had paid off. German voters handed her a second term on Sept. 27.

“Now Merkel has fallen into the Opel trap that some experts warned her about,” the Handelsblatt newspaper said yesterday in an editorial on its Web site. “The Americans’ interests won out and the German government is getting the run-around.”

Opel, identified by its lightning-bolt trademark, has about 50,000 employees across Europe. Germany is home to four Opel plants and half of the carmaker’s workforce, while 5,000 people work in the U.K. for Vauxhall.

Sberbank Funding

Magna and Moscow-based Sberbank had agreed to invest a combined 500 million euros in Opel. The buyers planned to expand Opel into Russia with the help of GAZ Group, a vehicle manufacturer controlled by entrepreneur Oleg Deripaska.

GM wants to work directly with GAZ to develop the Russian auto market “on a mutually attractive basis,” the U.S. company said in yesterday’s statement.

The Russian government said it was “surprised” by GM’s decision, RIA Novosti reported today, citing Dmitry Peskov, a spokesman for Prime Minister Vladimir Putin. Magna and Sberbank will consult with GM and conduct a legal analysis of the situation, the report said.

Slimming GM

Disposal of Opel had been part of GM’s plan to trim brands and return to profit after its U.S. government bailout.

GM plans to sell its Saab unit in Sweden to a group including sports-car maker Koenigsegg Automotive AB and its Hummer sport-utility vehicle brand in the U.S. to Chengdu, China-based Sichuan Tengzhong Heavy Industrial Machinery Co. GM is also shutting the Pontiac division, as well as Saturn.

The U.S. government is GM’s largest shareholder with a 61 percent stake. “The administration was not involved with this decision, which was made by GM’s board of directors,” said a Treasury spokeswoman, Meg Reilly.

The European Commission had expressed concerns that Germany improperly made Magna the only Opel suitor eligible for aid. The commission had aimed to publish an antitrust decision on the sale to Magna by Nov. 27.

Germany, which has been in talks with other countries with Opel factories on spreading the financial burden, told GM in an Oct. 17 letter that its aid wasn’t confined to Magna and remained available to any investor chosen on the basis of economic criteria.

Opel, Germany’s second-largest carmaker after Volkswagen AG, may have cut as many as 10,900 jobs in Europe under the Magna deal, according to German government estimates.

It is unclear how many positions will be eliminated from Opel as a wholly owned unit of the largest U.S. automaker.

“GM is overreaching itself,” the University of Duisburg- Essen’s Dudenhoeffer said. “The Western European market is highly competitive. It is too much for them to succeed in the U.S. and here. They won’t make it. Sooner or later Opel will go into insolvency.”

To contact the reporters on this story: Chris Reiter in Berlin at creiter2@bloomberg.net; Katie Merx in Southfield, Michigan, at kmerx@bloomberg.net; Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net

Last Updated: November 4, 2009 07:51 EST