Could Politics Derail GM Europe Deal?

Anyone who thought the deal was done, can think again. Over the weekend all sorts of tricky issues have arisen around the announcement of the sale of General Motors' European brands to a consortium made up of Canadian-Austrian car parts supplier Magna and Russia's development bank, Sberbank.

The announcement, made late last week after a meeting of GM's board, will see Magna (MGA) and Sberbank (SBER.RTS) purchasing a 55 percent stake in Opel, with GM retaining 35 percent and the remaining 10 percent going to workers. It came after months of wrangling over the future of the American car company's European subsidiaries.

But almost as soon as the announcement was made, there was strong international reaction. Germany was accused of trying to push GM into selling its Opel and Vauxhall concerns to Magna with a sweetener of around €4.5 billion ($6.5 billion) worth of state aid. The other nations in which GM also operates car manufacturing plants were not impressed, saying that German jobs would be protected at the expense of ones elsewhere.

The European Commission threatened on Monday to block the German government subsidies. "If something happens against the rules, action will be taken," said a spokesman for Neelie Kroes, the European Union's competition commissioner.

Belgium Leading Charge to EU Commission on Competition

Belgian Foreign Minister Yves Leterme told news agency Belga on Sunday that he had met with Spain's State Secretary for Trade, Silvia Iranzo Gutiérrez and the Hungarian State Secretary for competitiveness, Zoltán Mester, to discuss the issue further. Both of those countries also have Opel plants—although currently, the Antwerp plant is the only one in immediate danger of closure.

Leterme also complained to the German government about not having been invited to a planned meeting in Berlin on Tuesday to discuss the future of Opel's plants. While Germany has promised substantial state aid to Opel's new owners, it has not yet been determined exactly where the money is coming from. German money will be coming from federal and state coffers but the other nations in which Opel and Vauxhall plants operate may also be asked to contribute. Almost half of GM's 54,000 strong workforce is located in Germany; the Spanish have the next highest number of Opel employees at around 7,000.

Leterme said he had also met with Bernd Pfaffenbach, state secretary in Germany's Economy Ministry, to insist that European Union rules on state aid and unfair competition were adhered to.

No Political Fixes, No Links Between State Aid And Job Security

Additionally, former Belgian Prime Minister Guy Verhofstadt told Reuters that he had asked European Commission President Jose Manuel Barroso the same sorts of questions. As a result the issue is likely to be debated on Monday in the European parliament—Verhofstadt is currently the leader of the Liberals, the third largest group in the EU assembly.

The other country where a former GM plant may close is Britain. Magna have said that if it cannot get more orders, the Luton plant, which manufactures Vauxhall vehicles as well as some Renault vans, may cease being operational after 2012. And on Monday, British Business Secretary Peter Mandelson reiterated comments made by the Belgians. "Our Vauxhall plants at Ellesmere Port and Luton are highly efficient and I am sure, and we insist, that this be recognized," he said in an interview on BBC radio. "There will be some tough detailed negotiations that lie ahead and it's very important that the European Commission takes a role and a hand in these negotiations." Mandelson stressed that it was important that the European Commission "not accept anything that looks like a political fix or any linkage between aid and retention of jobs in any specific plant or country."

Opel Trustee Criticizes German Government's Handling

It wasn't all quiet on the German front either. Over the weekend, newspapers reported that Magna would be cutting more jobs from Germany's Opel plants than had previously been expected—around 4,500 rather than somewhere between 2,500 and 3,000.

Additionally, Dirk Pfeil, one of the trustees that had been working on the Opel Trust, established by the German government to look after Opel's affairs when GM went into bankruptcy, made some negative remarks about the Magna deal. On Saturday Pfeil, who is a member of the opposition Free Democratic Party and a bankruptcy administrator, told an interviewer from radio station Deutschlandfunk that, if he "had known that it would be a political decision rather than an economic one," he would never have had anything to do with it.

Pfeil told Frankfurter Allgemeine on Monday that, according to Magna's plan, over €600 million of the state aid being promised to Opel would be heading straight to Russia, where it would be used to help modernize the aging and outmoded Russian auto industry. "This means that German technology will be going to Russia—which will mean redundancies in Germany at a later date anyway," he said. Pfeil, who was so opposed to the Magna deal that he abstained from the vote on it, also said that he felt the development of Russian markets was being seen in far too positive a light. In remarks that further damned the German government, Pfeil told Bild newspaper that "the sale to Magna is an example of exactly the kind of aggressive industrial politics that Germany is always being criticized for—and rightly so."

Other German politicians were quick to defend the Magna deal. Thomas Schäfer, a member of the German government's Opel Task Force and a representative of the four states in which Opel has plants, told German news agency dpa that Pfeil's comments were "irritating" and incorrect. According to the very detailed contracts, Schäfer said that the transfer of Opel technology to Russia would only be possible with GM's agreement. And this would doubtless be carefully regulated, he explained.

Chancellor Angela Merkel also weighed in on the debate over the weekend. She denied in an interview with Süddeutsche Zeitung on Saturday that Opel was being bailed out with German taxpayers' money. "We don't rescue companies, we are simply giving them a chance to survive the financial crisis," she said.

Whether Merkel's argument washes with the EU commission on competition, which is clearly under pressure from other member states now, remains to be seen. Kroes, the competition commissioner, has already said that state support should not be tied to factory locations.

And according to SPIEGEL, commission staff pouring over the documents that the German government and Magna have sent them have come across a number that could endanger EU approval of the state aid—it indicates that Opel's Antwerp plant is actually more efficient than the German plant in Bochum.

cis—with wires