WASHINGTON - US AUTOMAKERS General Motors on Tuesday scrapped an on-again, off-again plan to sell its big European division, Opel, which had triggered a political and diplomatic controversy.

The surprise announcement dealt a blow to German Chancellor Angela Merkel, on a visit to Washington, and who had backed the move to sell Opel to a Canadian-led venture as the best way of saving jobs in Germany.

GM said in a statement its board made the decision because of 'an improving business environment for GM over the past few months, and the importance of Opel/Vauxhall to GM's global strategy.'

It said the GM board 'has decided to retain Opel and will initiate a restructuring of its European operations in earnest.'

The announcement is the latest twist in a saga which has led to months of uncertainty for Opel after the struggling US auto giant GM underwent a government-backed bankruptcy reorganisation.

The European unit, which was to be shed under the plan, turned into a major polemic involving US and European governments which clashed over which portions of the automaker would be saved and what types of aid would be offered.

GM said it now believes keeping Opel and restructuring the European division itself would be the most cost-effective solution. -- AFP