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Nils Untangles General Motors.

Eddie Mair | 16:35 UK time, Friday, 29 May 2009

"nilsaaaa.JPG"The General Motors story gets ever more complicated, so here's a simple version.


In the next few days General Motors Corporation in America is likely to go into what's called Chapter 11 bankruptcy. That will give the loss-making company an opportunity to re-organise its business under the supervision of a judge, while car-making continues.

The plan is for the US government to put in at least $30 billion in addition to the $20 billion it has already provided to re-finance the business. In return it will end up owning almost three quarters of a slimmed down "new GM".

Attempts are being made to transfer the European arm of General Motors - which includes Opel and Vauxhall - into a separate trust which will be shielded from the US bankruptcy arrangement. But talks between the government of Germany (which has about half of the 50,000 European workforce), the US government and GM about how this new trust will be financed have proved extremely difficult.

If a deal can be done to separate GM Europe (including Vauxhall) from its US parent and shield it from bankruptcy the second stage of the process can begin. This would involve another company taking a major stake in GM Europe. The German government is likely to provide loan guarantees to make this deal work. The UK government has said it will "consider" requests for financial support.

The proposal which appears to be most likely to succeed comes from the ambitious Canadian car-parts maker Magna. It has put a new plan forward today.

Lord Mandelson - the Business Secretary - has said that he has had assurances from Magna that it will continue car-making in the UK. But it may be some time before we know exactly what would be the implications of a Magna takeover for the Vauxhall for its 5,500 UK workforce and plants at Luton and Ellesmere Port.

If no deal is reached in Europe before the US business goes into bankruptcy the picture gets even murkier. But European car-making operations would almost certainly continue, while a longer term solution was negotiated."

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