Germany will probably reject Opel aid request, lawmaker says

Automotive News report

Berlin, Germany -- Germany will probably reject General Motors Co.'s aid request for its money-losing Opel/Vauxhall unit because the US carmaker can afford to fund the reorganisation itself, a lawmaker in Chancellor Angela Merkel's ruling party said.

With Merkel's cabinet holding a special two-day meeting starting 6 June in Berlin to single out further budget cuts after helping to bail out Greece, politicians see little room for helping Opel.

“We cannot possibly tell the people, 'You have to put up with higher costs while we're propping up a company like GM that is perfectly able to cope by itself,'” said Michael Fuchs, deputy member of parliament's economics committee, which the Economy Ministry regularly updates on GM's request. “I don't expect the government to grant aid.”

GM is pursuing aid from Germany and other European nations, even after posting first-quarter net income of $865 million (Euro 708 million).

The automaker received a setback in its effort to secure Euro 1100 million in German loan guarantees to help turnaround Opel after a government panel on Monday declined to endorse the request.

The government-appointed group of outside advisers took a “very critical attitude” on GM's application, Economy Minister Rainer Bruederle said Tuesday at a press briefing in Berlin. The advisory panel's recommendation will carry major weight for the further decision-making process.

The government's steering committee for aid assistance, led by Deputy Economy Minister Bernhard Heitzer, will meet on 4 June to study the recommendation, with a final decision on GM's petition to be made late this week or early next week, Bruederle said.

“It's an open secret that I have viewed the whole matter with skepticism from the beginning,” Bruederle said.

Stefan Weinmann, a spokesman for Opel told Bloomberg: “At the end of the day, it's a decision by the government steering committee. We're going through the process.”

US-German relations

German business daily Financial Times Deutschland earlier said, without citing sources, that the advisory panel found no financial reasons to extend loan guarantees to Opel. That means any decision in favor of aid would be based on political rather than financial factors, such as a desire to preserve good US-German relations, the paper said.

Opel labor leader Klaus Franz said to his knowledge the article was speculative and wrong. "There was no negative recommendation," he said.

The advisers to the rescue fund are mainly former captains of German industry, such as ex-Schering ceo Hubertus Erlen and industry lobby group BDI's former head Michael Rogowski.

Labor agree deal

In a positive step for Opel's turnaround efforts, labor and management signed a restructuring deal on Monday that aims to save Euro 265 million in annual wage costs through 2014.

European union and workforce representatives from countries hosting Opel's major factories signed the deal with Opel ceo Nick Reilly.

Franz said the signatures meant neither side can now withdraw from the contract, eliminating concerns that it might only be valid if Germany agrees to loan guarantees.

"In the unlikely event that Germany doesn't grant state aid, we can no longer be extorted," Franz told Reuters, adding that all the conditions and terms agreed earlier had been adopted into a final binding agreement.

All parties to the deal had signed apart from representatives from the Opel plant in Bochum, Franz said, adding he expected them to sign soon.

GM plans to eliminate 8300 of Opel's 48000 positions. European governments are seeking to avoid factory closures and minimise the job cuts. GM has said it will close a plant in Antwerp, Belgium, if it doesn't find a buyer for the site by the end of September.

Bloomberg and Reuters contributed to this report

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