U-turn

Beleagured car manufucturer General Motors has decided not to sell its European subsidiary Opel to the Russian-backed Canadian company Magna. The decision nullifies months of complex negotiations with the German government, and throws new doubt on the future of Opel's 50,000 European employees.

GM said in a statement the board made the decision because of "an improving business environment for GM over the past few months, and the importance of Opel/Vauxhall to GM's global strategy."

GM's 13-member board met on Tuesday in Detroit after European Union officials asked GM to confirm that it would have sold Opel to Magna even if it had known that 4.5 billion euros ($6.58 billion) in state aid promised by Germany would go to any buyer.

GM to restructure Opel

According to a statement, the GM board "has decided to retain Opel and will initiate a restructuring of its European operations in earnest" and seek aid from the German government.

"GM will soon present its restructuring plan to Germany and other governments and hopes for its favorable consideration," said Fritz Henderson, president and chief executive.

"We understand the complexity and length of this issue has been draining for all involved. However, from the outset, our goal has been to secure the best long term solution for our customers, employees, suppliers and dealers, which is reflected in the decision reached today," he added.

Anger and disappointment in Germany

Roland Koch, state premier of the German state of Hesse, said he was "extremely shocked and annoyed" about GM's decision.

"In the light of the bad experience we've had in the last few years with GM's company policy, I'm very worried about the future of the company and its employees," he said in a statement on Tuesday night.

Koch said he expected GM to repay the bridge loan the German government had given it, "so that the German taxpayer is not affected."

The German government also expressed disappointment at GM's unexpected u-turn.

"The German government regrets the decision of the board of General Motors," spokesman Ulrich Wilhelm said on Tuesday night. "It cuts off a process of finding investors that was intensively pursued for more than six months."

According to Wilhelm, Magna's plans for Opel had shown a convincing industrial logic.

The German government called on GM to build up Opel's capacity, and to keep "necessary adjustments" to a minimum. The government also echoed Koch's injunction for the return of its 1.5-billion-euro ($2.2 billion) bridge loan.

Chancellor Angela Merkel has asked Economy Minister Rainer Bruederle to report on Opel's position in Wednesday's cabinet meeting.

bk/AFP/Reuters/dpa

Editor: Nigel Tandy