How the Wheels Fell off the GM Europe Sale

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Ironically, it was the Russian connection that made the deal possible in the first place. Magna had no chance without the Russian money, and what Russia wanted in return was technology. Not only that, but Magna's "industrial partner" in Russia was the country's second-biggest carmaker, Gaz, controlled by Lord Mandelson's friend Oleg Deripaska.

Mrs Merkel's use of GM's technology to tempt the Russians into a deal to safeguard German jobs was what raised hackles at GM. Hilton Holloway, an industry expert at Autocar magazine, said: "Russia is desperate to get its hands on car technology. Ms Merkel was using GM's kit as a bargaining chip but she over-cooked it and went too far."

One of the more ill-suited deals in corporate history would have gone ahead were it not for Neelie Kroes, Europe's Competition Commissioner. Last month, just weeks before the Magna deal was announced, Ms Kroes raised concerns that Berlin's €4.5bn for Magna would be "incompatible" with Europe's state aid rules. Spooked, the German Economics Minister, Karl-Theodor zu Guttenberg, wrote to GM confirming that the €4.5bn was available to any successful bidder.

GM's board, newly appointed in August as part of the company's rescue from bankruptcy, saw its chance. The final decision on Magna was hastily put back to late November. Despite official expressions of surprise this week from everyone from Lord Mandelson to the Russian Prime Minister, Vladimir Putin, it was only a matter of time.

The Magna deal was not only bad for GM, it was bad for Magna, which would have been left with a loss-making rump of a company, far too small to compete with rivals like Volkswagen (VOWG.DE). And though German politicians may be spluttering with indignation, the Magna deal would never have made it through Europe's state aid laws. Ultimately, Ms Kroes would have sliced it up, probably to look much like what GM will now do itself—a point argued by Professor Garel Rhys, at Cardiff Business School's Centre for Automotive Industry Research.

The German government still got what it wanted. Whether Chancellor Merkel would have lost her second term if the furore over Opel's future had come before the election is hard to say. Either way, it was well played.

Provided by The Independent—from London, for Independent minds

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