DETROIT – In a dramatic change of course, General Motors Co. backed out of a deal to sell the company’s European operations to car-parts supplier Magna International Inc., and now plans to spend billions to restructure the money-losing business itself.
The decision to keep control of Opel of Germany and its British sister company Vauxhall was made at a board meeting Tuesday in which the company’s directors strayed from the plan of Chief Executive Frederick “Fritz” Henderson, who had spent months negotiating the Magna agreement.
GM’s change of heart reflects the car maker’s increasing confidence about its outlook as well as the direction of its aggressive new chairman, Edward E. Whitacre Jr. The former AT&T Corp. chief, who was picked by the U.S. government for his post, has told GM executives to concentrate on expanding its market, not shrinking it.
The Opel sale plan was concocted in the car maker’s darkest hours, as it faced insolvency and the need for a $50 billion U.S. bailout. Since emerging debt-free from bankruptcy reorganization in July and 60 percent owned by the U.S., it has seen car sales climb, reporting Tuesday that its October U.S. sales rose 4.7 percent.
Opel also is a key supplier of car designs for GM operations in the U.S., including the underpinings of the strong-selling Chevrolet Malibu sedan and small-car technology that could be important as U.S. fuel-economy standards are tightened.
GM’s move carries both risk and potential reward for the company’s chief owner, the American taxpayer. Instead of retreating to its main markets of North America and China, as envisioned until recently, GM will attempt to remain a global car maker with a major European presence. Keeping Opel could require a further infusion from GM coffers. But if GM turns around the European operation it could be a potentially more profitable company, one able to make good on its borrowings from the U.S. and Canadian governments.
The GM board was persuaded to keep Opel by the unit’s “improving business environment” and its strategic importance to GM, Mr. Henderson said in a statement. “GM will soon present its restructuring plan to Germany and other governments and hopes for its favorable consideration,” he added.
The Opel deal is the second major transaction to fall apart for Henderson in little over a month. GM had anticipated selling its Saturn division to mega auto dealer Roger Penske, but Mr. Penske’s plan died after French auto maker Renault SA, which was in talks to supply Saturn with vehicles, changed its mind. Now, GM plans to close Saturn.
This latest Opel development provides a fresh wrinkle in the evolving relationship between Henderson – who has been at GM for a quarter century – and a board made up largely of GM newcomers who have a wealth of experience in private equity, turnarounds and deal making.
Whereas Henderson’s predecessor, Rick Wagoner, had often won in the boardroom by relying on the support of long-serving directors, Henderson appears to be tiptoeing through land mines of strong opinions by adjusting his game plan.
Henderson by no means is out of the woods. Now, he must implement a turnaround in Europe that has so far been unattainable despite a decade of restructuring – much of it orchestrated by him earlier in the decade.
GM is asking European governments that host Opel or Vauxhall plants, including Germany, Poland, the U.K., and Spain, for about $4.43 billion to help revamp the operations. About $3 billion of that is expected to come from Germany.
One issue that GM faces soon is the Nov. 30 expiration on $2 billion in bridge loans from Germany. GM hadn’t received word from the German government Tuesday evening on whether it will continue extending the loans or request they be repaid, said a person familiar with the matter.
German Chancellor Angela Merkel was meeting with President Obama and U.S. lawmakers in Washington on Tuesday. She had been a vocal backer of Magna’s Opel bid.
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