Opel's German aid may break rules

Opel and Vauxhall employ about 45,000 people in Europe

The European Commission has warned that Germany's planned state aid for Opel may breach competition rules, raising the prospect of its sale being halted.

Brussels said there were "significant indications" Berlin pledged the 4.5bn euro ($6.7bn; £4bn) aid only if its preferred buyer for Opel was chosen.

US firm General Motors (GM) said last month it would sell Opel to Canada's Magna, Berlin's preferred buyer.

The Commission said GM should now be allowed to reconsider the sale.

Although GM picked Magna and its Russian backer Sberbank last month to buy Opel and Opel's UK brand Vauxhall, the deal has yet to be concluded.

Neither the German government nor Magna has yet given any reaction to the Commission's comments. The UK's Department for Business, Innovation & Skills also declined to comment.

However, Chris Preuss, GM's global vice-president for communications, said that if the proposed sale to Magna "couldn't pass EU regulations, we'd have no recourse but to reconsider the deal".

"Right now though we are working on a defined agreement with Magna and it's a complicated process with a lot of dialogue," he added.

"There are a lot of discussions going on at the moment, and there's a lot of detail to be ironed out between the German government and the EU."

'Concerns'

The Commission said that the concerns were raised by EU Competition Commissioner Neelie Kroes in a letter to German Economy Minister Karl Theodor zu Guttenberg.

ANALYSIS BBC business reporter Joe Lynam The comments by Neelie Kroes will be a major potential irritant for the freshly re-elected German government of Angela Merkel. A few weeks after confirming Magna as the buyer of Opel/Vauxhall, the Commission looks as if it may insist that the bidding be re-opened. This is due to what it sees as bias on the part of the Berlin government in favour of Magna and against all other bidders. Having already dragged on for months, the trauma of not knowing who will buy Opel/Vauxhall will continue for the thousands of workers anxious to find out who their new bosses will be. Many of whom will certainly lose their jobs at the end of this process either way. It also throws up the prospect of a very powerful face-off between the all-powerful EU Commission and the all-conquering German car industry and its friends in Berlin.

It said that in the letter she pointed to "significant indications that aid promised by German government to New Opel was subject to the precondition that a specific bidder, Magna/Sberbank, was selected".

The Commission added that Ms Kroes "indicated that such a precondition for the aid would be incompatible with... state aid and internal market rules".

"Commissioner Kroes explained that GM and the Opel Trust should be given the opportunity to reconsider the outcome of the bidding process on the basis of firm written assurances by the German authorities that the aid would be available, irrespective of the choice of investor or plan," said the Commission.

Magna, a car parts firm, and its Russian backer Sherbank, were chosen by GM ahead of Belgian investment fund RHJ, Italy's Fiat, and China's Beijing Automotive Industry Holding.

Independent car industry analyst Robin Roberts said it would be very interesting to see how the story now developed.

"Everybody is aware of the rules surrounding European aid, and anyone - be that a company or a country - that contravenes those rules can expect to have problems and face the consequences," he said.

Other government fears

Both the Belgian and Spanish governments said last month that they wanted the Commission to study Germany's role in the sale of Opel.

See GM production centres in Europe Enlarge Map

Magna's proposed deal with GM will see it take a 55% stake in Opel, with GM keeping 35% and 10% going to employees.

Opel currently employs about 50,000 people across Europe, including 5,500 at its Vauxhall business in the UK, and 25,000 in Germany.

Magna is proposing 10,500 job cuts in total at Opel, including 4,500 in Germany.

However, it has indicated that it wishes to keep open all four of Opel's German plants, while a factory in Belgium is said to be at risk of closure.

Despite Magna being yet to conclude its takeover of Opel, earlier this week it secured an agreement with the UK union Unite over job cuts at among the 5,500 workers at the two Vauxhall plants in Ellesmere Port and Luton.

Magna has agreed to limited job loses to 600 people, and only through voluntary redundancy.