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Fears grow over General Motors' Magna deal

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Fears grow over General Motors' Magna deal

General Motors is increasingly concerned about the stalemate in negotiations on Opel and Vauxhall's future and has kept alive plans to keep its European operations or sell them to another party.

By Graham Ruddick

Published: 8:59PM BST 11 Oct 2009

The American car maker agreed to sell a majority stake in GM Europe to Canadian automotive group Magna after filing for bankruptcy protection in June.

In a sign that the deal could still collapse, GM has said it wants to see progress on talks with European governments about funding and job cuts by the end of the week, according to sources close to the talks.

Although they insist GM is confident a deal can be done, the company is keeping on the table the alternative plans it drew up for Opel and Vauxhall before agreeing to the Magna deal, such as selling the units to investor RHJ International or keeping control of its European operations.

Opel and Vauxhall are currently being propped up by a €1.5bn (£1.4bn) bridging loan from Germany.

GM wants to complete a deal by the end of the year because of fears that Opel and Vauxhall will run out of cash. But after talks with the governments, there also needs to be agreements on sales and purchasing as well as contracts with suppliers, which are expected to take time.

A major row has broken out over whether Germany's financial support for Magna's acquisition of a 55pc stake in GM Europe, which totals €4.5bn, has influenced where the job cuts are made.

Spain and the UK have both indicated they will not financially support Magna's restructuring plans in their present form, which envisage 10,500 job cuts.

Lord Mandelson, the Business Secretary, believes Magna's proposals have "shortcomings".

Up to 1,200 jobs could go in the UK, about a quarter of the workforce, compared to 16pc of Germany's 25,000 GM workers.

Magna wants to cut capacity at the Ellesmere Port plant to 120,000 cars a year from 180,000, despite the plant being widely considered to be one of GM's most efficient in Europe.

Unions and the Government are pressing for 150,000 cars a year, which could save a substantial number of jobs.

The company denied reports at the weekend that Magna had already decided not to build its electric hybrid car, the Ampera, at Ellesmere Port.

A Department for Business spokesman said: "We are in discussions with Magna on the long term future of both the Ellesmere Port and Luton plants.

"It is our firm belief that no final decision has been taken on the future of the Ampera."

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