“Think about it. If you are a member of the union right now, you’re spending all your time negotiating about health care. You need to be spending some time negotiating about wages, but you can’t do it," he said.

In fact, the UAW locked itself into a contract limiting wages and changes to health care, without the ability to negotiate with a threat of strike, until 2015. These stands were agreed to by the union at the prodding of the Obama administration, which demanded that union autoworkers accept lower wages -- as a condition to the bailout that saved Lordstown -- to match non-union workers at Toyota plants in Kentucky and Honda plants in Ohio.

Even so, Lordstown is something of a success story for both the UAW and GM, and Obama's remarks were punctuated with enthusiastic applause.  After winning deep concessions from the UAW in 2007, GM agreed to invest $500 million to retool the plant to make a new fuel-efficient small sedan, the Chevy Cruze.

Obama had nice things to say about the Cruze, which GM expects to get more than 40 miles-per-gallon in highway driving.

"I just sat in the car," Obama said of the Cruze. "I asked for the keys. They wouldn't give me the keys. I was going to take it for a little spin. But it was nice sitting in there. It was a roomy car."

Consumers will not get the keys to a new Cruze, either, until the middle of next year when it arrives in showrooms. In the meantime, Lordstown is stuck building the Cobalt, a budget-minded Chevy and vestige of the "old GM." 

Consumer Reports in its October edition branded the Cobalt as one of the five "cruddiest cheap cars" on the market.

(Writing by Kevin Krolicki. Reuters photo by Larry Downing.)

- John Bowker is Reuters’ UK transport and defence correspondent. The opinions expressed are his own -

Lord Mandelson was in buoyant mood on Thursday night.

The future ownership of British car-maker Vauxhall had finally been decided. U.S. giant General Motors agreed to sell its European unit — which includes Vauxhall — to Canadian car parts maker Magna and its Russian backers. According to Mandelson, this was good news for the Vauxhall’s 5,000 British workers as it removed the uncertainty over their futures. Everyone can get back to work making cars and live happily ever after.

But for Mandelson the game is only just beginning. He is putting on a brave face now but he must know it is not that simple. He says Magna has assured him to his face that the British plants in Luton and Ellesmere Port will remain open. But for how long? He cannot say. And at what cost? Again — the details are yet to be finalised.

The union leader at Ellesmere Port tells me that an earlier draft of Magna’s business plan called for 830 job cuts at the plant, about 40 percent of the work force. This will be tied to lower output and changes to the pension scheme. Meanwhile, both Ellesmere Port and Luton have no entitlement to build the newer ‘green’ cars that have become a staple condition for future state support. Ellesmere Port will build the new Astra from this month, but what about next decade?

It is hard to overstate how much political wrangling has gone into the GM deal. It has involved Washington, Belgium, Spain, Poland — but particularly Germany, where around half of GM Europe’s workers are based. Magna secured Germany’s support by promising not to close any German plants — so who will take up the slack?

Mandelson is obliged to provide state support to Magna in return for keeping Vauxhall afloat. But there is no way the deal will go through without at least some job losses - possibly many hundreds. That means the Business Secretary will be putting up millions of pounds of taxpayers money to support a company intent on cutting British jobs. Where’s the fairness in that?

The auto industry world has changed forever. We simply do not need as many cars as in the past, and the end of recession will not return demand to previous levels. This means Mandelson and Vauxhall workers must accept some scaling back. But how much do you accept? What good will it do? And how much will we have to pay for it?

These are not questions you envy Mandelson for having to answer. But that’s what we pay him for.

General Motors doesn't do deals in a hurry -- at least when it is selling.

With the Opel sale grinding along, the U.S. automaker is also in the process of offloading its Saab brand to luxury sportscar maker Koenigsegg.

Financing is the major sticking point in the Saab sale process. Koenigsegg -- backed by U.S. and Norwegian investors -- reached a deal in June to buy Saab from GM but the process then stalled.

Now Koenigsegg -- which boasts having developed the world's fastest sportscar -- has apparently sent the Swedish government a new plan for financing the Saab purchase. This we're told no longer includes any extra loan from the government on top of funding guarantees from the European Investment Bank (EIB).  There were reports that Koenigsegg Chairman Augie Fabela thought he needed an additional 3 billion Swedish crowns of financing.

GM has always said it expects to close the deal by the end of the year. Given progress so far and the complications of agreeing autos deals with governments, it looks as though the automaker will have it right.

Good news: global car capacity is being cut by 700,000 vehicles. Bad news: the company doing the cutting is the world's most efficient manufacturer, Toyota.

Across the world, governments are pledging money to keep local plants open, mostly plants which have no long-term future, and which are far less efficient than the production line in Japan that Toyota is closing.

Welcome to the crazy economics of carmaking. According to CSM Worldwide, a consultancy, the world is capable of making about 94 million cars and trucks a year. In 2008, calculates OICA, an international carmaking trade body, global sales of vehicles were just over 70 million. This year may not reach 60 million, after the end of borrow-and-spend in the economies of the west.

In essence, the world is capable of making three cars for every two buyers. No wonder so few manufacturers can make money. Sergio Marchionne, responsible for the "near miraculous" revival of Fiat, believes that 5.5 million cars is the minimum output needed to make money, since it costs 500 million euros to develop a new model.

On Marchionne's maths, today's 11 volume carmakers will have to shrink to about six to stay viable, but events are following the political reality rather than the economic textbooks.

Opel, the loss-making European arm of General Motors, ought to close, but it won't. The German government will support its plants, and it seems that the UK government will pour money into Vauxhall too.

Peter Mandelson, the UK business secretary, has a reasonable record of resistance to subsidy, having rejected calls for help from Tata, the owner of Jaguar and Land Rover, but political reality in Luton and Ellesmere Port may force his hand over Vauxhall.

This is because carmaking is not just about preserving the jobs in the plant. Just-in-time production methods demand that the component makers set up as physically close to the line as they can; the Japanese "transplants" set up across Europe and America impact whole regions -- and their voters.

In the west, new car sales seem set to plunge, as the cash-for-clunkers schemes end in the U.S. and UK. These schemes have shifted the metal, but have brought forward many purchases which would have been made anyway. When the French withdrew their last similar scheme, new car sales plunged by 20 percent.

The combination of political interference, increasing longevity of the product and the burgeoning cost of development is a lethal one for shareholders and taxpayers alike. As Opel and Toyota are showing in their different ways, it's not going to end any time soon.

True to form, GM's negotiator on the sale of Opel has poured cold water on expectations of a slam-dunk deal for Canadian car parts group Magna and its Russian backers.

John Smith (no relation, but I'm impressed by his negotiating) maintains in his blog that GM will compare the latest Magna offer with the proposal it has on the table from Belgium-based financial investor RHJ International.

Yesterday was a pretty busy day in the media, with many outlets  reporting that Magna/Sberbank and General Motors had reached an agreement regarding Opel.  At the risk of repeating myself, that’s just not the case. (emphasis added)

Smith is still waiting for more information from Germany's automotive task force on the T&C of the financing package they are offering to sweeten a deal to buy Opel.

He's promising to keep us posted. Shame nobody else involved in the negotiations in blogging on them. Or perhaps a chatroom is the way to go.

It's not often you get to lift the hood and watch a power struggle going on in the engine room of General Motors. But the vice-president of GM Europe, John Smith, has just provided tantilising details of the arguments over the rival bids for Opel/Vauxhall, the main European arm of the fallen U.S. auto giant. Smith is the chief negotiator on the sale of Opel.

In a blog apparently intended to reassure Opel staff, but accessible to the public, he insisted GM had not specified a preferred bidder. But he made clear his own preference for the bid from Belgian financial investor RHJ International, which is loosely related to U.S. private equity fund Ripplewood, over the offer by Canadian-Austrian car parts maker Magna and its Kremlin-backed Russian partner Sberbank.

Smith's post is entitled "Clearing the Air" and was ostensibly written to clarify GM's intentions and dispel erroneous reports ascribed to interested parties. But his account shows just how poisonous the atmosphere appears to be between GM and Magna, and GM and the German government, which backs Magna's bid. It also suggests that the air is not too clear within GM's top management either.

Specific to the Magna bid, which is clearly preferred by several politicians and the Labor Bench, the bid presented to GM varied from the negotiations we had in the previous weeks and contained elements around intellectual property and our Russian operations that simply could not be implemented...

The bid from RHJI is completed and would represent a much simpler structure and would be easier to implement. It would require less monetary participation by the government and would keep our global alignments solid, while still creating an independent Opel/Vauxhall organization in Germany. This remains a reasonable and viable option to be considered as the very difficult issues around the Magna negotiations continue to be worked.

The following day, (July 29) Smith felt the need to add an update denying that GM was seeking to buy back control of Opel at a later date, or that it had asked the U.S. Treasury for financial assistance to restructure Opel. The former is strange since several sources have said a buy-back option is a key feature of RHJ's offer and not of Magna's.

So what is going on here and why did the chief negotiator feel the need to explain himself in semi-public in this way? One can only speculate, but one plausible theory is that GM's top management is split. This would not be surprising since the U.S. government now holds a controlling stake in the shrunken GM that emerged from bankruptcy, and Washington is probably being lobbied heavily by Berlin to support the Magna bid. A senior aide to Chancellor Angela Merkel discussed Opel with the U.S. Treasury on Wednesday.

If GM were to choose RHJ in defiance of Berlin's clearly stated wishes, it would spark a crisis with political ramifications just as Germany is entering the final phase of campaigning for a Sept. 27 general election. Might the Obama administration not lean on GM's top management in Detroit to avoid being branded as a potential job-killer in Germany? If so, Smith's blog may be a doomed effort to make business arguments prevail over politics.

Political and economic logic are set to collide in the byzantine decision-making over the future of German carmaker Opel, the main European arm of fallen U.S. auto giant General Motors.
If politics prevail, as seems likely, the cost to German taxpayers will be higher and the chances of commercial success lower.

The aim of the Berlin government and four federal states, which are sustaining Opel with bridging finance, is to save as many German jobs and production sites as possible. That makes political sense ahead of September's general election. But the business logic is that only a greatly slimmed-down Opel can survive in an industry with chronic overcapacity.
In theory, it is up to GM's board to choose among the three offers it expected to receive on Monday from Canadian-Austrian car parts maker Magna <MGa.TO>, Belgian financial investor RHJ <RJHI.BR>, and, less plausibly, Chinese state-owned auto maker BAIC. But there are several other powerful players with a say. They include the trustees responsible for the company since GM entered U.S. bankruptcy in June, the German federal and state governments, Opel's works council and, last but not least, the European Commission, which must approve the restructuring plan as a condition for authorising the state aid.

The German authorities and Opel's workforce prefer Magna's bid, which is backed by Russia's Sberbank <SBER03.MM> and automaker GAZ. The strategy is to seek growth in the dynamic but volatile Russian market. Magna requires the most state aid -- 4.5 billion euros -- but has pledged to keep all German production sites and cut 10,000 of the 50,000 workforce across Europe, of which just 2,500 would go in Germany. GM Europe also assembles Opels in Belgium, Spain and Poland, and in Britain under the Vauxhall marque.

GM management is thought to prefer RHJ because its offer includes a buy-back clause that could put Detroit back in the driver's seat after three years in which Opel would be shrunk. RHJ wants less state aid -- 3.8 billion euros -- and plans a similar number of job cuts. However, the make-up of those cuts would be unpalatable to the Germans: it plans to shrink the plant at Bochum and idle that in Eisenach until 2012.

However smart business this may be, it is lousy politics. Bochum, in the Ruhr industrial rust belt, is still smarting from the offshoring of a Nokia plant to Romania. And Eisenach was the first new car factory to open in ex-communist eastern Germany. Indeed if GM defies Berlin's wishes, the government has said it would reconsider the offer of state aid to any other bidder.

The key may ultimately lie in Brussels. Germany's economics minister says the EU competition watchdog will require any buyer to inject more of its own funds as a condition for allowing state aid. That could lead to a more rational business solution, but it could also drive Opel into a dead end by making the deal unattractive to investors seeking a cheap ride.

- Professor David Bailey works at the Coventry University Business School. The opinions expressed are his own. -

General Motors announced its exit from Chapter 11 bankruptcy protection on Friday, and pretty speedy it was, too. The firm has quickly transferred its good assets to a new carmaker (”new GM”) which is majority owned by the U.S. government, and the whole bankruptcy process has taken just 40 days.

It used to be said that “whatever’s good for GM is good for the U.S. economy”. While GM is no longer the world’s biggest automaker, by some estimates it still accounted for 1 percent of the U.S. economy before going into bankruptcy. The latter has been not only hugely symbolic of the fate of the ailing U.S. car industry, but has also been of huge importance for all the workers, suppliers, dealers and creditors caught up in its travails.

The “new GM” that has emerged from Chapter 11 last week is a much smaller and leaner firm which has shed tens of thousands of workers, closed factories, cut loose hundreds of dealerships (further reductions will be needed), ditched several brands, and – with union agreement – changed employment contracts so as to cut costs.

Under bankruptcy protection, GM has shed over $120 billion in liabilities. Its work force will also shrink dramatically, from around 90,000 at the start of this year to around 64,000 by the end of 2009.

“New GM” will include the firm’s best models and R&D and will have scrapped brands like Pontiac, Hummer and Saturn. By 2012, the new GM will comprise the Chevvy, Cadillac and Buick brands, plus its GMC truck brand. Of particular importance, its forthcoming electric Chevvy Volt car will be part of the new firm

The U.S. government will take a 61 percent stake in the new GM, along with the Canadian government (12 percent), and the United Auto Workers’ retiree healthcare trust fund (17 percent). Creditors to the “old GM” will get just a 10 percent stake.

The Obama government has stressed that it does not aim to maintain a long term stake, and may look to sell off its shareholding as early as 2010, or as soon as the firm is ready list on the stock market.

A key goal for GM is to stabilise things by being able to make money even if U.S. car sales remain depressed at 10 million to 10.5 million vehicles a year. And it urgently has to get new technologies and cars to market quickly, staring with its electric Volt car in 2010. If it can do that successfully, it still has a chance, as long as it can repair its battered brand image.

In essence, the future of GM now depends on its ability to actually produce fuel-efficient cars that people want to buy and which match or exceed Japanese standards for quality. It still faces a massive challenge.

GM will never be the biggest manufacturer again. However, Chapter 11 was anyway about restructuring the firm, wiping clear most of the debts, cutting costs and reorientating the firm towards more environmentally friendly cars. A viable car company may yet emerge from the ashes of the old GM, thanks to an interventionist U.S. government which is investing heavily in new green technologies.

Just before GM entered Chapter 11, GM Europe was split off from its U.S. parent and placed in a trust fund. GM Europe employs around 55,000 workers across Europe, with some 25,000 based in Germany, and 5,500 at Vauxhall in the UK.

The Canadian car parts firm Magna International has emerged as the preferred bidder to acquire GM Europe, although GM has confirmed that it is still talking to other bidders. The German government has promised GM Europe substantial financial support; it has very much called the shots in Magna becoming the preferred bidder, and wants to defend jobs in Germany.

That still leaves some major question marks over Vauxhall in the UK. Concerns remain that UK workers will suffer job cuts if a Magna deal goes ahead, in part because of the financial support coming from Germany to protect jobs there, and also because it is easier to lay off workers in the UK than on the continent. Magna has said it will look for up to 9,000 redundancies in Europe.

Earlier this week GM confirmed a rival bid from Chinese firm Beijing Automotive Industries (BAIC). Whilst Magna has a head start in acquiring GM Europe and is still very much the favourite to acquire the firm, unless a deal is sealed within the next few weeks, BAIC may yet be in with a chance.

It’s not such a daft idea, especially for British workers. BAIC is thought to be looking to cut capacity in higher cost Belgium and Germany rather than in the UK, and to produce GM models in large numbers in China. The Chinese market is growing rapidly and probably offers more opportunity than the Russian market that Magna is thought to be targeting. A BAIC deal would also offer GM more upside benefit with a bigger stake in a new GM Europe.

These developments have added pressure on the UK government to intervene to support Vauxhall production. The government announced a 2.3 billion pound auto support package back in January, yet not a single penny of this money has yet to reach any car producer in the UK, although applications for support are thought to be at an advanced stage now. The government needs to speed this up and get the money flowing soon.

--Wei Gu is a Reuters columnist. The opinions expressed are her own--

Chairman Mao used to say the truth is always kept by the minority.

A little-known private Chinese machinery company's bid for a GM marque has been sneered at by even the patriotic Chinese media, but the deal could succeed where mightier plays like Chinalco's for Rio Tinto have failed.

True that private sector firms face an uphill battle in China against more dominant state-backed firms, but it seems like double standards when Western observers, who extol the virtues of the private sector taking the driver's seat, praise Chinalco's deal but dismiss Tengzhong's bid for Hummer.

Chinese media's disapproval of Sichuan Tengzhong Heavy Industrial Machinery's move has tempered concerns about technology and job transfers to China, as well as questions whether China's military was behind the bid.

This could give Tengzhong more bargaining power with bankrupt General Motors. Underestimation of Tengzhong could prove beneficial to the buyer in an environment where there are worries about Chinese deals not being completely driven by commercial interests.

No matter how carefully the now busted Rio deal was structured, Chinalco should know that buying pricey and highly political targets like resource companies is going to be greeted by the rest of the world with a great deal of suspicion.

Beijing's promotion of Chinalco's former boss Xiao Yaqing to the State Council, or cabinet, only served to reinforce that perception.

In contrast with the outspoken Xiao, the man behind the Hummer bid Li Yan, who now goes with a Buddhist name Suo Lang Duo Ji, tries his best to hide from the limelight, but that does not mean he does not have a plan.

HUMMER LIFT

If the deal goes through, the key question is whether Tengzhong has good strategy to turn around a tarnished GM brand.

China has shown success in the past - GM is already selling more Buicks in China than in the United States.

What Tengzhong could do is negotiating full rights to the Hummer brand and extending Hummer's powerful brand image to a broader line of industrial vehicles.

Industrial vehicles from airport trucks to oil-field trucks are selling like hot cakes, riding the country's construction boom.

If the Sichuan company, which already makes fuel tankers, dump trucks, tow trucks and fire trucks, wants to compete against the likes of Caterpillar in this niche market, will it have a better chance branding its vehicles as 'Tengzhong' or 'Hummer'?

While the Hummer brand has indeed become a lightning rod for critics of America's love for SUVs, the brand has also won acclaim as outperformers on rugged roads.

By using Hummer for industrial vehicles, Tengzhong can bypass Hummer's gas-guzzler image problem. Will you care how much gas a fire truck uses?

The company is talking about selling a greener version of Hummer and extending to emerging markets.

If Tengzhong could further broaden Hummer's offerings to include small SUVs, their sales are likely to jump in China, a country just starting to fall in love with big cars. China's SUV sales rose 25 percent in 2008, outpacing the 18 percent increase of passenger cars.

Hummer might have a reputation of being a millionaire's toy, but they are still coveted in China. An online survey by Sina.com shows that more than 60 percent people want to own a Hummer that costs more than half a million yuan (about $70,000).

Of course, the global auto industry has had its fair share of cash-rich investors who tried to revive ailing brands and failed, but Chinese entrepreneurs should not be underestimated.

Critics had scoffed at Geely Automobile's founder Li Shufu some 15 years ago.

After Li dropped out of school, he made refrigerator parts, then refrigerators and motorcycles, before pushing to make cars for the masses.

Today, Geely is one of the few Chinese automakers that export - Geely now supplies London's black taxis.

Defying media reports that regulators in China might block the Hummer deal, China's Ministry of Commerce said on Monday that Tengzhong's bid for Hummer is normal behaviour for a company seeking to take advantage of the global downturn to broaden its horizons.

This makes sense. The acquisition has the potential to meet China's strategy to move up the manufacturing value chain.

Moreover, the repeated disappointment by state-backed acquirers should have taught Beijing that buyers like Tengzhong are their best bet to drive China's great wall of money to global markets.

-- At the time of publication Wei Gu did not own any direct investments in securities mentioned in this article. She may be an owner indirectly as an investor in a fund --

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Mon Dieu! Are the Germans starting to behave like the French?

Berlin’s efforts to salvage carmaker Opel from the wreckage of U.S. auto giant General Motors pose as big a challenge to Europe’s single market as French attempts earlier this year to tie loans to its carmakers to keeping jobs and factories in France.

The European Commission, which enforces EU competition rules, made President Nicolas Sarkozy drop any formal condition on the aid to Renault and Peugeot. But it seems ill-placed politically to stop the German juggernaut, even though the deal seems to be pegged to keeping German factories open and making any job cuts and closures elsewhere.

Facing a general election in September, Chancellor Angela Merkel wants to save Opel by providing 1.5 billion euros in bridging finance until it can be taken over by private investors backed by several billion more euros in state loan guarantees.

Federal and state leaders have pushed the suitors into a bidding war to preserve Opel’s 25,000 jobs and four production sites in Germany in preference to other GM plants in Britain, Belgium, Spain and Poland.

That amounts to using German taxpayers’ superior financial muscle to skew Europe’s level playing field. It is not only unfair to European neighbours but also to other German and European car manufacturers, under market pressure to reduce huge overcapacity in the sector.

A similar problem arises when governments tell banks receiving public capital injections or state guarantees that they are expected to lend at home rather than abroad. But while rescuing banks may be necessary to prevent a financial system collapse, rescuing Germany’s number four car maker is largely about saving jobs and votes rather than the economy.

European Commission President Jose Manuel Barroso, seeking reappointment by EU leaders on June 18, has for months deflected calls for an EU-wide car industry recovery plan opposed by Berlin. That has left member states to take measures compatible with EU rules such as scrappage premiums and loans to develop clean engine technology.

The commissioners for competition, enterprise and employment warned jointly on May 12 that state aid to GM Europe “cannot be subject to additional non-commercial conditions concerning the location of investments and/or the geographic distribution of restructuring measures.”

But the EU executive has kept a low profile in the Opel affair and only called emergency talks for Friday with ministers from member states concerned after Belgium wrote to Merkel and Barroso urging a European solution to avoid beggar-thy-neighbour policies. With GM hurtling towards a June 1 U.S. deadline for bankruptcy, the meeting seems to be a damage limitation exercise and comes too late to change Berlin’s approach.

Barroso has tried with some success to hold the line against protectionism and subsidy races in Europe since the financial crisis began. But he has not yet shown a way out of the contradiction between governments using taxpayers’ money in the national interest and the preservation of fair competition within a single market. State-aided deals forged in the furnace of the crisis will prove difficult to unpick and the distortion they wreak on competition can grow over time.

Yet applying EU rules strictly by forcing banks or car companies that receive rescue aid to restructure and cut back activity after six months is politically impossible in such an economic emergency. Competition Commissioner Neelie Kroes was slapped down after she threatened to let banks go bust if they failed to provide satisfactory restructuring plans on time.

But the EU badly needs a strategy to get the toothpaste back into the tube once the crisis eases. A reappointed Barroso will have to get tougher after the German election.

(Editing by David Evans)