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Germany rejects bid for state aid for Opel

 

Germany rejects bid for state aid for Opel


Automotive News | June 9, 2010 – 11:31 am EST

UPDATED: 6/9/10 1:59 p.m. ET
 

BERLIN (Bloomberg) — Germany rejected General Motors Co.’s request for 1.1 billion euros ($1.3 billion) in aid for the loss-making Opel unit, forcing GM to seek other alternatives for the division’s reorganization.

“I’m convinced GM has sufficient financial resources,” Economy Minister Rainer Bruederle told reporters in Berlin today, in explaining why he turned down GM. “The state is not the better entrepreneur.”

Bruederle said the automaker has about 10 billion euros in free liquidity after fully paying back credits from the U.S. and Canadian governments.

GM has been seeking 1.92 billion euros in aid from European countries to fund a restructuring that includes closing a factory in Antwerp, Belgium, as it eliminates 8,300 of Opel’s 48,000 jobs. Europe was the only region where GM posted a loss in the first quarter. The carmaker recorded a $865 million net income in the period.

"GM and Opel are very disappointed," Opel CEO Nick Reilly said in a press conference following the decision. "I don’t really understand the decision."

Germany’s refusal throws into question how GM will fund the 3.6 billion-euro reorganization after abandoning an agreement backed by German Chancellor Angela Merkel to sell a majority stake in Opel to Magna International Inc. last November.

During the 18-month wrangling over Opel’s future, which included bids from Italian automaker Fiat SpA and RHJ International SA, Opel and its U.K. brand Vauxhall have struggled to retain customers.

Opel has already benefited from a bridge loan from Germany last year as well as the government’s “cash-for-clunkers” program, Bruederle said, adding he made the final decision after an advisory committee failed to make a unanimous recommendation.

Market share decline

Opel’s European market share dropped to 7 percent from 7.6 percent in the first four months of 2010, even though the carmaker late last year introduced a new version of the Astra, its best-selling model, according to statistics from the European Automobile Manufacturers’ Association.

“Opel’s drawn-out efforts to secure state aid has created a huge image problem,” Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen, said prior to the announcement. “That loser image is going to stick.”

German lawmakers expressed concern about granting GM money as Merkel’s government pushes ahead with planned budget cuts of more than 80 billion euros over the next four years.

An outside advisory panel to the government that included former Schering AG CEO Hubertus Erlen and Michael Rogowski, the former head of Germany’s main industry lobby group BDI, last week recommended that Germany turn down GM’s application.

‘Better position’

GM filed for bankruptcy protection in June 2009 and emerged a month later with Ed Whitacre as chairman. He took over as CEO in December and has shuffled management and cut brands to four from eight. The company has since then repaid $8.4 billion in U.S. and Canadian loans it assumed as it emerged from bankruptcy.

“GM is in a much better position in economic terms now than a year ago,” Bruederle said. “All told, I’m confident that the future of Opel can be secured without state aid.”

In addition to the German aid request, Opel is seeking 333 million euros in guarantees from the U.K., 437 million euros from Austria and Spain combined and 50 million euros in project financing from Poland, a PricewaterhouseCoopers report last month commissioned by the German government and obtained by Bloomberg News showed.

Opel still has the backing of the four German states where it has operations, which may help open the way for international capital-market financing for new technology, Klaus Franz, the head of the division’s works council, said today in an e-mailed statement.

Opel said in its Feb. 9 business plan that 4,000 of the 8,300 jobs to be eliminated would take place in Germany. The Russelsheim, Germany-based division seeks to break even in 2011 and return to profit by 2012.

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