Finance

Finance

Rift over state aid to Opel deepens in Germany

17 November 2009 11:58 (UTC +04:00)

Baku â€“ APA-Economics. German Chancellor Angela Merkel’s Cabinet appears divided over whether the government should extend aid to GM’s European subsidiary Opel. Key members of government have sent out conflicting messages on the issue, Deutsche Welle reported.

Economics Minister Rainer Bruederle said on Monday that previous German pledges to provide state aid to carmaker Opel no longer apply now that General Motors has said it can restructure its European arm alone.

"GM Chairman (Ed) Whitacre has said that his company can handle Opel, so this means that agreements and pledges that were based on other concepts are moot," Bruederle told reporters on the sidelines of a financial industry conference in Frankfurt.

Whitacre was quoted in the Bild am Sonntag weekly saying his company was financially strong enough to shoulder the costs of an Opel restructuring on its own. But GM Europe has said it will need help from the governments of countries where it maintains factories.
Bruederle, who is a member of the business-friendly Free Democrats, the junior partner in the new federal coalition government led by Chancellor Angela Merkel, left the door open for regional aid for Opel from the four states where the carmaker has plants. He also said Opel, not GM, has a right to apply for state aid, but added there was no guarantee the company would receive federal aid.

Contradictory statements

The economic minister’s comments appeared to contradict those of Finance Minister Wolfgang Schaeuble, a member of Merkel’s Christian Democrats (CDU), who told the weekly business magazine Wirtschaftswoche that the government could not refuse to provide aid now that GM had decided to hold on to Opel.

Berlin had originally pledged to contribute 4.5 billion euros ($6.7 billion) in financing as part of a takeover of Opel by Canadian auto parts group Magna. GM reversed course earlier this month and decided it would rather keep Opel than sell a majority stake to Magna.

"We simply can’t say that for Magna we would have done all we could because we feel a responsibility toward the people and the plants, but then turn around and rule that out for another owner," Schaeuble said.

Funding by states

In an apparent sign of a growing schism between Berlin and the state governments over the issue of aid for Opel, leaders of states where Opel plants are located have criticized Bruederle’s comments.

"It’s not acceptable that the federal government should go back on a commitment made just 10 days ago," said Kurt Beck, the premier of the state of Rhineland-Palatinate.
Juergen Ruettgers, premier of North Rhine-Westphalia, called for the states and federal government to maintain a united stance.

"Once the parent company General Motors presents a clear plan, the federal and state governments would together - as they have up to this point - come up with a shared response," he said.

GM has not said when it intends to announce its restructuring plans for Opel.

Opel employs about 50,000 staff in Europe. Half of the carmaker’s European workforce is employed at the four plants in Germany â€“ Ruesselsheim, Bochum, Eisenach and Kaiserslautern.

GM’s decision to hold onto the Opel has angered employees in Germany. Earlier this month, thousands of auto workers put down tools at German factories, accusing GM of betraying their interests by reversing the decision to sell a majority stake in Opel to the Russian-backed consortium led by Magna.

Opel also has plants in Britain, Spain, Belgium and Poland.

Restructuring costs

While the debate over funding Opel intensifies, there is still no clarity on exactly what the revamping costs will be.

GM believes it will need around 3 billion euros to turn Opel around, but Opel board member Armin Schild of the IG Metall labor union told Wirtschaftswoche that he expected restructuring costs to be roughly twice as much.
"I assume that a restructuring that also lays the foundation for future development would cost over 6 billion euros, probably closer to 7 billion euros," Schild said.

Meanwhile, General Motors said on Monday that it had begun repaying German state aid for Opel and that it would pay off the remaining amount by the end of the month.

"Opel has already repaid 500 million euros of that in November, and will repay the remaining 400 million euro balance by the end of the month," GM said in a statement releasing financial results.

General Motors reported that it lost $1.2 billion in the third quarter of 2009, beating analysts’ expectations and saying the company now had a "solid foundation" for its restructuring effort.