GM Opts to Keep Opel, Scraps Sale to Magna

DETROIT/FRANKFURT (Reuters) - General Motors reversed course on Tuesday by abandoning a long-expected sale of its Opel to a group led by Canadian auto supplier Magna and opting to keep the European unit after a year of uncertainty and high-stakes political negotiations.

GM said improving business conditions and the strategic importance of Opel had prompted the unexpected move by its 13-member board of directors appointed in the wake of its own bankruptcy just four months ago.

The decision represented a setback for German Chancellor Angela Merkel, raised the risk of conflict with Opel's European unions and left open the question of how GM would finance its plan to go it alone by restructuring Opel.

The move also marked a startling shift in direction from the course for Opel endorsed by GM Chief Executive Fritz Henderson, who two weeks ago had said a sale of the European unit was the most likely outcome.

German's government had lobbied hard for the Magna deal and on Tuesday night said it wanted GM to repay 1.5 billion ($2.2 billion) in bridge financing extended by German state banks.

"The government regrets the decision of the General Motors board to restructure Opel itself and to keep it in the group," government spokesman Ulrich Wilhelm said in a statement.

GM said it expected that restructuring Opel on its own would cost about 3 billion euros ($4.41 billion), costs expected to cover job cuts and plant closures.

Senior GM executives were caught unaware by the move by the automaker's board, led by plainspoken former telecommunications executive Ed Whitacre, an outsider who became the face of the new GM in a recent TV ad blitz in the United States.

Whitacre, whose appointment was vetted by the Obama administration, has shown a hard-charging streak, showing up at GM factories unannounced and putting tough questions to management, people familiar with his tenure have said.