GM pulls out of Opel sale

GM has abandoned its planned sale of Opel to Canada's Magna and Russia's Sberbank . The surprise move will be an embarrassment for the German government which has expended a lot of political capital on the controversial deal.

After a six-hour board meeting on Tuesday, the US carmaker said it would hold on to Opel and start restructuring its European unit, which also comprises British marque Vauxhall.

The decision marked a U-turn in GM's strategy and reflects improved business confidence in the car sector, highlighted on Tuesday by another positive month of increased car sales in the US.

The move will be a blow for the German government, which has spent months deeply involved in political bargaining to clinch a state-supported deal with Magna, the Canadian car parts maker.

A spokesman said the German government regretted GM's decision and would ask for repayment of a €1.5bn ($2.2bn) bridging loan Berlin had made to the company.

Fritz Henderson, GM's chief executive, said: "GM will soon present its restructuring plan to Germany and other governments and hopes for its favourable consideration.

"GM's overall financial health and stability have improved significantly over the past few months, giving us the confidence that the European business can be successfully restructured," he added.

Mr Henderson said GM's plan for Opel foresaw restructuring expenses of about €3bn, much less than the €4.5bn Magna has demanded in state loans and guarantees from European governments.

Lord Mandelson, the British business secretary, was said to have been "surprised" at the news from GM on Tuesday night, but he is confident that GM's two Vauxhall plants in Britain at Ellesmere Port and Luton have a bright future.

Government officials say the two plants, which employ 5,500 people, are among the most efficient in Europe and can hold their own against other GM plants in any commercially based future for the company.

Lord Mandelson's aides said he would "leave no stone unturned" in working with GM to secure Vauxhall's future, including the possibility of state aid if necessary to secure jobs in the long term.

Unite -- one of Britain's biggest unions -- said GM's decision to abandon the Magna deal was "the best deal for Britain".

The decision came as a huge blow to Magna and to Russia's ambitions to overhaul its gravely damaged automotive industry with the help of Opel.

However, GM said on Tuesday it would strive to resume its co-operation with Russia's carmaker Gaz.

The board's move came after the European Commission last month expressed concerns about the fairness of the bidding procedure and asked GM for confirmation that a €4.5bn state-aid package to secure the deal would have been given to every possible bidder.

In the months before Brussels intimated its concern, senior German politicians made it very obvious that the state would only support a deal with Magna.