GM General Motors Company

By William Boston in Berlin and Nick Kostov in Paris 

The chief executives of General Motors Co. and Peugeot moved quickly on Wednesday to head off political resistance emerging in Germany to the potential sale of GM's struggling Opel unit to its French rival.

Both companies said on Tuesday they were in talks that could lead to the sale of GM's European business to Peugeot. It quickly became clear, however, that political opposition to job cuts in a year of hotly contested elections in Germany and France would be one of the biggest obstacles to any deal.

GM's chief executive Mary Barra and the company's president, Dan Ammann, flew to Germany overnight to meet Opel's management and senior labor representatives at Opel's headquarters in Rüsselsheim. The meeting appears to be the first extensive discussion about the sale that Ms. Barra has held with senior management at Opel.

In Paris, Peugeot chief executive Carlos Tavares, credited with a swift three-year turnaround of the French car maker, reached out to German Chancellor Angela Merkel to try to win her backing for the deal.

Ms. Merkel's spokesman told reporters that the government hadn't yet received a request from Mr. Tavares, but stressed that the government would play an active role in any sale of Opel.

"Opel is an innovative company with a long history in Germany," said Steffen Seibert, Ms. Merkel's spokesman. Considering "the consequences for jobs at many locations in Germany, it's clear that we, the government of the Federal Republic, will be involved," he said.

The Opel sale opens old wounds for Ms. Merkel. In 2009, she fought hard with GM to ensure that GM's planned sale of Opel to Magna International Inc. of Canada wouldn't lead to massive job cuts at the German factories. Two months after signing the deal, GM changed its mind, and pulled out of the sale in a bid to rebuild its European business.

GM's new turnaround comes as Ms. Merkel faces a tough reelection bid. Her liberal immigration policies have boosted a antiestablishment party, --Alternative for Germany--which is gaining in the polls. And, for the first time in years, a resurgent Social Democratic party leads Ms. Merkel's conservatives in the polls. The two parties share power in Ms. Merkel's coalition government.

Surprised by GM's renewed change of heart, Ms. Merkel's cabinet held "intense discussions" about the sale and Opel's future at its weekly meeting on Wednesday, said Andrea Nahles, a Social Democrat, and labor minister.

"Our highest priority is securing the three Opel factories in Germany," Ms. Nahles told reporters after the cabinet meeting.

Opel is one of Germany's oldest car makers. The company began making sewing machines in 1862 and began making cars in 1899. GM bought the struggling company in the midst of the financial crisis of 1929.

Today, Opel and its British Vauxhall unit operate 10 factories in Europe. The company employs 38,000 people, 19,000 of them in Germany.

Brigitte Zypries, Germany's economics minister, said it was "completely unacceptable" that GM and Peugeot carried out negotiations about the sale of Opel without any involvement from trade unions or the company's workforce, which under German law has extensive rights to influence management decisions.

"We will study a potential sale of Opel/Vauxhall to (Peugeot) without reservations based on our previous experience with Peugeot," Ms. Zypries said.

Members of Ms. Merkel's Christian Democrats also cited job security for Opel's German workforce as their priority. Volker Bouffier, prime minister of Hesse state, where Opel is based, said it didn't matter who owned Opel, adding: "What matters is what happens here."

While fear of job losses could be expected to spark protests, it is less clear whether Germany has the power to block a deal. In the 2009 sale, in the wake of the financial crisis, the German government provided subsidies to ease the costs of restructuring. That gave Berlin a voice in the negotiations.

George Calliers, an analyst with Evercore ISI, said Peugeot may not plan big job cuts, at least not at first. He said Mr. Tavares can achieve large savings by combining research and development costs and other capital expenses, allowing him to avoid raising the specter of job cuts in an election year.

"Restructuring is probably a longer-term story," said Mr. Calliers.

Zeke Turner in Berlin contributed to this article.

Write to William Boston at william.boston@wsj.com and Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

February 15, 2017 09:21 ET (14:21 GMT)

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