About-Face on Opel: GM Withdraws Pleas for Public Money in Europe

General Motors Europe on Wednesday announced that it was withdrawing its request for financial assistance from European governments as it restructures its subsidiary Opel. The decision comes just a week after Germany declined to provide funding.

Opel parent GM said on Monday that it was withdrawing its applications for public funding. Zoom
DDP

Opel parent GM said on Monday that it was withdrawing its applications for public funding.

For months, the question as to whether government money should be made available to carmaker Opel has occupied Berlin. Just last week, Germany's position on the question caused a brief bout of friction in Chancellor Angela Merkel's governing coalition.

But on Tuesday, Opel parent General Motors made the question moot by saying it was withdrawing applications for some €1.8 billion ($2.2 billion) in aid from European governments. Instead, the company has decided to fund the restructuring of its Opel/Vauxhall unit internally.

"The validity and reasons for requesting government guarantees have ... not changed, but the process has proven to be much more complex and longer than anticipated and the results are still not finalized or certain," GM Europe said in a statement posted on its website. The company also cited "the need to progress the (restructuring) plan quickly."

The decision comes just a week after Germany decided not to commit public money to Opel's restructuring efforts. Economy Minister Rainer Brüderle announced last week that Opel's request would be refused -- a position that was briefly contradicted by Merkel, leading many to fear that Brüderle's resignation was nigh. The chancellor, however, ultimately supported her minister. Several German states where Opel factories are located indicated they might jump into the gap.

'Need to Move On'

Opel on Wednesday cited the Berlin decision as being a factor in its change of course. "The decision of the German government last week was disappointing and means that the conclusion of these guarantees is again likely to be months away," the GM statement quoted Nick Reilly, president of GM Europe, as saying. "We need to move on."

In his statement last week, Brüderle said that a factor in his decision to deny Opel public money was that "I am convinced that GM commands sufficient financial means. Thus, GM can fund the restructuring of one of its most important subsidiaries itself." On Wednesday, Brüderle responded to GM Europe's announcement by saying "I feel like I have been completely affirmed in my decision."

Opel made its request for government funding in February when it unveiled its plan to nurse the European subsidiary back to health. The scheme called for the cutting of 8,300 out of 48,000 jobs in Europe as well as the closure of a plant in Antwerp, Belgium. None of the four Opel plants in Germany are to be shut down, however.

Higher than Expected

Wednesday's announcement marked the second time in less than a year that GM Europe has reversed course on Opel. Last November, after Berlin had spent months trying to midwife a sale of the GM subsidiary to a group led by the Canadian auto parts maker Magna, GM changed course and decided not to sell. Berlin had been willing to provide significant financial support to make that sale happen.

Most of those negotiations, however, occurred during Merkel's first term, in a coalition with the center-left Social Democrats. Her new coalition partners, the pro-business Free Democrats, are much less enthralled about providing public money to private enterprises. Last week's brief altercation between Merkel and Brüderle once again highlighted the difficulties Merkel has had getting used to her new partners.

Opel had received pledges from the British government for loan guarantees worth €330 million and a similar amount from Spain. Reilly cited GM's improved financial fortunes as being a factor in the company's decision and also noted that demand for Opel products has been higher than expected this year.

cgh -- with wire reports

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