General Motors has decided to pull out of the deal to sell its Opel/ Vauxhall European operations to Magna.

After months of painstaking negotiations, including a £4 million package of loan guarantees from the German government to sell to its preferred bidder, GM has told investors that it is holding onto Opel/Vauxhall because the business environment has improved.

It intends to embark on a major restructuring initiative to reduce overheads by an initial €3 billion (£2.76 million), significantly lower than all bids submitted as part of the investor solicitation.

This will include, as GM puts it, “meaningful contributions” from all the key European markets, suggesting Vauxhall’s plants at Ellesmere Port and Luton might be affected.

“GM will soon present its restructuring plan to Germany and other governments and hopes for its favorable consideration,” said Fritz Henderson, president and CEO.

“We understand the complexity and length of this issue has been draining for all involved. However, from the outset, our goal has been to secure the best long term solution for our customers, employee, suppliers and dealers, which is reflected in the decision reached today.

“This was deemed to be the most stable and least costly approach for securing Opel/Vauxhall’s long-term future.”

But Kevin Gaskell, chairman at motoring.co.uk, said it was a "brave" decision by GM.

"While the car market is certainly showing signs of improvement, it's still a long way from being healthy," said Gaskell. 

"Although GM may benefit in the short term from the billions of Euros of government backed funding that was put aside for Magna, this funding will need to be repaid and will not provide a long term solution to their business needs. GM will need substantial and expensive restructuring to protect jobs and achieve long term company success.

“GM have spent several months reviewing options and planning the next steps, and I hope that the time spent forming that plan has enabled them to now make a sound business decision and that this reversal of strategy is not a reflection of the pressure that they have faced from the workers unions. Long term job security can only be provided by a commercially successful enterprise."

Meanwhile, Vauxhall chairman and managing director Bill Parfitt is to retire. He will continue to support the Opel/Vauxhall organisation as non-executive Chairman from January 1 2010, focusing on non-operational activities in the business.

Duncan Aldred will return to the UK to take up the roles of managing director GMUK Ltd and executive director sales, service & marketing UK & Ireland. He is currently director, European sales operations in GM Europe.