Opel picks Magna; job cuts loom over European plants

After several weeks of hectic discussion in various capitals of Europe and across the Atlantic, GM's European jewel Opel has picked Canadian automobile parts maker Magna International as its partner.

German chancellor Angela Merkel said that selling Opel to Magna would protect Opel's assets from GM's anticipated bankruptcy.

German officials said Magna will use financing from Russia's state-owned Sherbank to take over Opel.

Under the terms of the deal, GM would retain a 35-per cent stake in the new company, with Sberbank, a bank controlled by the Russian government, taking another 35 per cent, Magna holding 20 per cent and Opel's employees controlling the remaining 10 per cent. (See: Magna set to bag Opel as Fiat skips talks).

Magna has said it would need to eliminate at least 2,500 jobs in Germany.

However, it is reported that German economics minister Karl-Theodor zu Guttenberg broke ranks with Merkel by criticising the deal.

Guttenberg, one of Germany's lead negotiators in the effort to save Opel, offered to resign on Saturday after he came out publicly against the deal, saying the government was risking billions of euros for a short-term solution.

''The concept is not without risks for the state and the guarantees it has promised for Opel,'' Guttenberg told the German newspaper Welt am Sonntag.

''For Opel and Magna, the work is now just beginning and there are several difficulties still to be overcome,'' Merkel said after the marathon negotiations concluded in the early hours of Saturday.

The deal is also seen as a political strategy played by Russian prime minister Vladimir Putin to expand Russian business in Western Europe.

In Britain, Belgium and Poland, where thousands more jobs are at stake, officials were trying to get assurances that factories would be kept open. But it is possible that in Germany, where GM employs 25,000 workers, that the effects will linger longer.

British business secretary, Lord Mandelson, is preparing to meet Magna officials to chalk out a plan on Vauxhall, Opel's British unit.

Lord Mandelson said yesterday: ''We have to encourage Magna to pin down their commitment here in the UK. Frankly, in contrast to Fiat, Magna's business plans were vaguer. At least Fiat was clear.''

Magna may have to cut some jobs in Britain, analysts said. Vauxhall has about 5,000 employees in its roll.

However, the deal cast shadow over Fiat chief executive officer Sergio Machionne's plan to become the world's No. 2 carmaker.

Marchionne earlier said that manufacturers who were able to produce about 6 million cars would only be able to survive in the coming years.

Acquiring Chrysler will make Fiat the world's sixth-largest carmaker, with production of 4 million vehicles.