Rescue Plan Under Fire Merkel's Opel Offer Slammed

The German government's offer to come to the rescue of carmaker Opel has come in for hefty criticism, particularly from within Chancellor Merkel's own party. Meanwhile Opel says it is reducing production for next year and cutting back to a 30-hour week in most plants.

They say that if America sneezes, the world catches a cold. Now, it seems that if US auto giant General Motors has influenza then its European subsidiary Opel is going to straight to the German government for the aspirin.

On Monday Berlin agreed to consider extending loan guarantees to Opel so that it can insulate itself from the troubles at its parent company in Detroit. While Chancellor Angela Merkel was careful to insist that any such move would be a special case, the plans are already coming under fire. Some politicians from within her own party have attacked any hint of a bailout, with some arguing that German taxpayers should not be helping out what is essentially a US company.

Merkel met with Opel executives on Monday  after they asked for a loan guarantees of around €1 billion ($1.26 billion) to ensure liquidity if Detroit-based GM files for bankruptcy. The entire US car industry is pleading for a government aid package of around $25 billion to weather the current problems wrought by the worst economic situation in decades.

In Germany, where the auto industry is one of the biggest employers, some are concerned that any state aid to Opel could flow across the Atlantic to prop up its US parent company. Others worry that bailing out one company or one sector could have a snowball effect with troubled firms automatically turning to the state when the going gets tough.

Michael Fuchs of Merkel's Christian Democrats (CDU) said that the country could simply not afford to provide loan guarantees to Opel, saying that it would be impossible to define the limits as to which companies should be bailed out. "Where do we start? Were do we stop?" he said in an interview with the left-leaning newspaper Berliner Zeitung. Fuchs said that Germany was "not in a position to save US companies," adding that taxpayers money should not be used to keep companies on life support that would not otherwise survive.

'Path to Ruination'

There were also complaints from the CDU's Bavarian sister party the Christian Social Union (CSU). The party's deputy chairman, Peter Ramsauer, voiced his concern about the possible impact a state bailout for Opel would have on other parts of the car industry and about what signal it would send to other industries. "We have to do everything to avoid something that is slippery slope to a state economy -- that would be the path to ruination."

Meanwhile, according to German media reports on Wednesday, Opel is sharply reducing the amount of cars it produces in almost all of its European factories. "We are preparing for tough times and are correcting our volume plans for 2009 by at least 10 percent," Opel boss Hans Demant told the Frankfurter Allgemeine Zeitung.

Instead of 1.7 million cars, Opel will now produce just 1.5 million cars next year, Klaus Franz, the head of the Opel works council told the same paper. "We are discussing a 30-hour week in all our European factories apart from Rüsselheim," he said. The Rüsselheim development center employs around 18,300 workers. Opel employs a total of 25,000 workers in Germany and is indirectly responsible for an additional 50,000 jobs.

Opel produces smaller cars for the lower-income market and has been particularly badly affected by the economic downturn. It has seen sales slump by 12 percent this year and has had to cut production in a number of plants already.

Opel boss Demant, however, is insisting that the company would only require the loans if the money stops flowing from Detroit altogether. He told the FAZ: "Even if there is a deep recession our liquidity is secured for the foreseeable future even without the loan guarantee." He said that even if GM were to file for Chapter 11 bankruptcy Opel would remain solvent. And speaking to radio station Bayerische Rundfunk on Tuesday, Demant said "We only have a problem in connection with our parent company in America." GM had pledged to invest €9 billion in Opel up to 2012 with the goal of developing 20 new models.

'Much More than Just Detroit'

However as GM tries to negogiate its own bailout that pledge is unlikely to be fullfilled any time soon. The Detroit-based auto giant, which has owned Opel since 1929, is facing particularly tough times. The head of the company, Rick Wagoner, was one of several auto executives who appeared before the US Senate Banking Committee on Tuesday to explain how the US car industry is teetering on the edge of disaster and urgently needs a $25 billion aid package.

"This is about much more than just Detroit," he said. "It's about saving the US economy form a catastrophic collapse." GM alone is seeking between $10 billion and $12 billion.

On Tuesday Chancellor Merkel urged Congress not to discriminate against European carmakers. "We will observe very closely the way the United States government acts regarding its own automobile industry," she said during a summit with Italian Prime Minister Silvio Berlusconi. "From the point of view of the European industry we don’t want the Americans to adopt certain measures that could become a problem for us."

Meanwhile, her government has said it will decide by Christmas whether to extend the loan guarantees to Opel. Any such move would need to be approved by Brussels. European Industry Commissioner Guenter Verheugen has already signalled his support, telling German radio on Tuesday that he would "welcome it if everything was done to prevent an important and traditional car producer in Europe from dropping out of the competition for reasons it's not responsible for." Last month Verheugen came out in favor of providing the struggle auto industry with €40 billion in low-interest loans .

However his colleague, Competition Commissioner Neelie Kroes, was less enthusiastic about the German offer to help Opel, saying that the car industry should not get special treatment. "You cannot compare the car sector with the financial sector."

Nevertheless, the Commission is reported to be considering ways of helping the auto sector as part of its broad package of stimulus measures that is due to be announced next Wednesday. EU sources told Reuters that any aid to carmakers would be temporary and would be strictly tied to sector's environmental performance. "What will not happen … is a proposal for old-style subsidies."

smd -- with wire reports

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