UK Government Denies Illegal Promises Were Made to Opel and General Motors: Report

The UK government may have made illegal promises to General Motors Co. (NYSE: GM) to shift production of the Astra compact car to its Opel/Astra plant in Ellesmere Port in the Merseyside from locations in Germany, a report said.

German news agency DPA reported that GM's Opel division decided last week to place Astra production in Ellesmere Port rather than at plants in Ruesselsheim or Bochum, Germany, as a result of illegal promises. The accusations originated with Opel labor boss Wolfgang Schaefer-Klug.

The promises from the UK government contravene EU rules on subsidies, and appear to be tied to the decision for Ellesmere Port, the report said. The European Parliament is probing the matter, Auto News reported. Moreover, Schaefer-Klug stated that cost-savings was not the motivating factor for moving Astra production to the UK, as he claims it's €219 ($279) cheaper to build a car at Opel's Ruesselsheim plant.

The government rebuffed the accusations in an emailed statement. It is important to be clear nothing 'special' has been offered to GM. Rather, they were simply made aware of the excellent business environment and support systems that the UK offers to all businesses, a spokesman for the Department of Business wrote, according to Reuters. Likewise, Vauxhall Motors (Opel's U.K. brand) denied that it had applied for government support to produce the next generation Astra.

The shift draws production away from Opel's German operations and puts a question mark next to the continued existence of its Bochum plant. GM will invest $300 million to retool the Ellesmere Port plant and has confirmed that it will continue to operate the Ruesselsheim plant. However, the plant at Bochum is only guaranteed through 2014 because it only produces older-model Astras and the Zafira minivan.

General Motors has given Britain and its workforce a fantastic vote of confidence, British Prime Minister David Cameron said last week when the announcement was made.

Cameron referred to Opel's decision as the result of a real team effort with the government, the company, unions and workers, which are focused on keeping production in the UK. Ellesmere Port is where Vauxhall Motors, GM's British subsidiary, has built cars since 1962.

Comment from the Prime Minister's office on Schaefer-Klug's accusations wasn't available Tuesday. Likewise, Opel representatives were unavailable for comment.

Shares of GM, based in Detroit, rose 15 cents to $21.69 in Tuesday trading.