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.

–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 –

– Louis E. Lataif, a former president of Ford Motors of Europe, is dean of the Boston University School of Management. The views expressed are his own. —

Government ownership of General Motors (60% U.S. and 12% Canada) will be fraught with difficulties.

Given the large taxpayer stake in the company, it will be impossible for elected officials to stay out of the fray. Congress inevitably will interject itself in business decisions affecting employment, the kind of vehicles the company builds, or the company’s position on nationalizing health care – just as it is now asserting itself on the question of dealership closures.

Imagine the new General Motors (i.e., the government) attempting collective bargaining with the United Auto Workers’ union (on whose behalf the government stepped into the fray in the first place).

Consider the company lobbying Washington on an issue favored by the government (e.g., tax policy or the elimination of secret ballots for workers) but ill-suited for the company. And there there’s the matter of types of vehicles to be built.

With a strong environmental agenda, the government will understandably favor alternative fuel vehicles. Yet, there is no company in the world making any real money on such vehicles, given the current economics of alternative propulsion methods.

The government points to Toyota as a car company that has been responsive to the need for small, fuel-efficient cars, but Toyota reported a first quarter loss much worse than that of General Motors. That’s because the vehicles that keep these businesses viable — larger cars, SUV’s and trucks — are not selling in sufficient volume during this consumer credit crunch.

If GM’s new owner find that the company’s products are not selling well (while competitor vehicles are selling better) it may decide to institute expensive purchase-incentive programs. When those programs are matched by the competition (which is what happens in normal competitive marketing), thereby eroding the profitability of the healthier competitors, where do those stronger companies go to complain about predatory pricing practices by their government-owned competitor?

I think the current approach to “saving General Motors” will prove untenable.

If the government truly believed that America needed to save its domestic auto industry, it would have been far wiser if the U.S. Treasury served simply as a lender of last resort. It then could have granted the ailing automakers interest-bearing bridge loans with restrictive covenants requiring sacrifices from management, the union, the bond-holders, and suppliers — and then let professional managers run the private businesses.

Then when the demand for automobiles rebounds (as it always does following a recession), the taxpayers would be the first to be repaid.

But by becoming an owner, a role for which government is singularly ill-suited, the federal government has taken us into difficult, uncharted economic waters — a market-damaging move I suspect we will regret. Hopefully, the Treasury realizes this and will work to find a swift way out of its ownership position.

Mr. Ludwig, a former U.S. Comptroller of the Currency, is founder and CEO of  consulting firm Promontory Financial Group. Any opinions are his own; GMAC Financial Services is one of Promontory’s clients.

The economic upheaval wreaking havoc on the global financial system is threatening to claim another victim: the domestic automobile industry and its financing arms.

General Motors Corp. could run out of cash by January without help. Ford Motor Co. and Chrysler LLC also need fast government intervention to stay solvent. Automakers and the UAW are making their case to Congress this week for emergency help. But even the supporters of a $25 billion aid package for the auto industry are dubious about whether they have the votes to pass it.

This raises the question, why not just let them go bankrupt?  The domestic auto industry is everyone’s favorite whipping boy, and its problems have been growing for decades. Some are of its own making; many are circumstantial. But we cannot blithely accept its failure as somehow inevitable or deserved.

Our economy has been badly battered in recent months, and has become increasingly fragile. The erosion of our industrial base already presents real security risks to our nation. Why would we accelerate this sorry state of affairs at a time of national crisis by sitting on our hands and letting a signature American industry collapse?

The American auto industry is well worth saving, for many reasons.  One reason is that for the past decade Detroit has made heavy investment and steady progress in improving its competitiveness, what it calls “altering the DNA” of American cars.  US automakers spend $22 billion annually on plants, equipment, research and development. Breakthroughs are at hand in developing alternative fuel propulsion systems, and our national well-being and security depend upon seeing them through to completion.

If we allow U.S. automakers to go under out of anger, resignation, or ideology, it will only mean all the work and investment of the last decade will be ceded to our foreign competitors instead of being plowed back into the U.S. economy.

Another reason is the industry’s importance to the job market and the wider economy.  Automobile manufacturing directly employs a quarter of a million workers and indirectly about one in ten U.S. jobs are related to some degree to the automotive sector, according to GM estimates.  So the effects of a collapsed U.S. auto sector would not be limited to Detroit – they would be magnified as the ripples spread to related industries.

If we allow U.S. automakers to fail, millions of retirees depending on auto company pensions will be at risk and auto manufacturing jobs will disappear. The ripple effect won’t end there; millions of jobs in related sectors, such as  U.S. manufacturers of steel, aluminum, iron, copper, plastics, rubber, electronics, and computer chips, will also feel the pain.

Worse yet, the promise of a meaningful future for American manufacturing would fade. As that promise dims, the role played by manufacturing jobs as a passport to the middle class would likewise disappear.

The auto manufacturers did not cause this crisis; they were working hard to reinvent the quintessential American invention when high oil prices and economic upheaval hit, dragging them into the vortex. There is a tendency to think that an example must be made, that someone must be allowed to fail.  But do we really need to cut out of the heart of the real economy? When the patient is in the middle of a full blown coronary, it’s no time to discuss lifestyle changes.

We can and should revisit subjects like executive pay scales and expense controls when the industry isn’t at death’s door.  For now, we should recognize the gravity of the moment, and use the TARP funds and pass necessary auto-related financial stabilization legislation to avoid digging a bigger hole for the national economy.

Congress is taking a hard look at Detroit's autos these days. But what about Detroit's jets?

When the chief executives of Ford and General Motors flew in to Washington yesterday to ask Congress for a $25 billion lifeline, they didn't fly coach.

General Motors CEO Rick Wagoner arrived on his company's cushy Gulfstream IV, ABC News reported. Ford CEO Alan Mulally flew in on a private company jet as well.

It costs about $20,000 to fly one of these jets round trip from Detroit to Chicago -- far more than the $900 cost of a first-class ticket on Northwest Airlines, ABC said.

Wagoner told ABC he took the private jet because he's a busy guy. Mulally declined to comment.

It's not exactly news that corporate fat cats prefer to fly in style. And assuming all eight seats on the G4 were taken, the private jet only cost about $13,000 more than flying commercial.

But it might not be the best move by Big Auto as it tries to convince Congress that a $25 billion bailout would be money well spent. The two have already been criticized for their generous pay packages ($22 million for Mulally in 2007, $15.7 million for Wagoner).

What do you think? Is this a tempest in a teapot, or further evidence of Detroit's poor business practices?

For more Reuters political news, click here.

Photo: REUTERS/Kevin Lamarque (Auto industry leaders testify in Senate on Nov. 18)