Thursday's deal involves all of GM's European operations with the exception of Sweden's Saab unit, which is being sold to Swedish sports car maker Koenigsegg and Beijing Automotive Industry Holding (BAIC).

Under the deal General Motors would keep 35 percent of the shares in its European Opel/Vauxhall operations and sell 55 percent to Magna and Sberbank. Employees would take a 10 percent stake in "New Opel."

GM will retain an option to buy back Opel shares, should Sberbank or Magna decide to sell at a later date.

"It implies that the new Opel company may have a structure that will allow it to issue shares," Christoph Stuermer, a senior market analyst with IHS Global Insight told Deutsche Welle.

The deal also gives GM veto rights if technology is transferred to Russia - a main concern for the Detroit-based company.

Germany avoids plant closures

Unions have signed an agreement that supports "the necessary cost restructuring," GM chief executive Fritz Henderson Henderson said in a statement.

Magna has said in the past that it would eliminate 10,000 European jobs after taking over Opel, but no figure was given on Thursday.

However, it appears that the German government will be the winner of the deal, with all four German plants set to maintain their operations - which will probably go down well with German voters in the Sept. 27 general election.

In contrast, a closure of Belgium's Antwerp plant looked likely and a relocation of production from Spain's Zaragoza plant to Eisenach in Germany was under consideration, said General Motors Vice President John Smith at a press conference in Berlin.

Germany is home to 25,000 Opel workers, about half of GM's total European workforce.

Merkel boosted ahead of election

Thursday's announcement could not have come at a better time for Chancellor Angela Merkel, who is looking to retain her post and strike up a government coalition with the liberal Free Democrats after the election.

"I am very pleased about this decision, which is in line with the expectations of the German government and Opel employees," said an exultant Merkel.

However, Merkel also underlined that Opel's new start would not be easy, adding that Germany would begin talks with its European Opel partners on how to share the load on a fair basis.

One reason Germany had an edge on other production sites was Opel's technology center, which is based in Ruesselsheim. In addition, Berlin offered 4.5 billion euros ($6.5 billion) in state-backed guarantees to help Magna restructure the European operations.

Fred Irwin, who chairs the government-backed trust set up to oversee Opel before GM's bankruptcy, underlined at a press conference in Berlin on Thursday that German taxpayers' money would not go abroad. All the funds provided by the German public would go into "New Opel," he said.

Several key issues still need to be finalized before "New Opel" is born, including the terms of German government funding. However, both Chancellor Merkel and GM were optimistic that this would be settled soon. GM said in a statement that the final documents should be ready for signing within a few weeks, and that the deal should close within the next few months.

While German Opel employees and the government are jubilant for the time being, some auto experts say the deal constitutes a missed opportunity to take some pressure off the struggling auto market which is also burdened by excess capacity.

"We've just passed through one of the best opportunities in over a decade to see real capacity taken out of the industry," Michael Tyndall, an analyst at Nomura International told Reuters.

nk/dpa/Reuters/AP/AFP

Editor: Nancy Isenson