The Rebuff from Detroit How the Opel Deal Went Sour

The bid by the German government to secure Opel's rescue has ended in fiasco after General Motors pulled out of a deal to sell its troubled European subsidary. Berlin lacks a strategy for how to deal with the country's most important industry.


Many refer to the man in charge at the corporate headquarters of General Motors (GM), housed in the five glass towers of the Renaissance Center in downtown Detroit, as "Fix-it Fritz."

Frederick A. Henderson, 50, the chairman and CEO of GM, has always been called Fritz, even as a child. He is a polite man who, in his 25-year career at GM, has acquired the reputation of being a levelheaded numbers and cleanup man, a problem-solver -- hence the nickname.

Last Tuesday, the German chancellor made the unpleasant discovery that Henderson lives up to his moniker. In the space of 20 lines on a piece of paper, Henderson destroyed Angela Merkel's dream of being celebrated as the intrepid savior of German automaker Opel.

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Photo Gallery: The Opel Fiasco
In the short letter to Merkel's newly appointed economics minister, Rainer Brüderle, Henderson announced that the board of directors planned to "retain Opel Europe as part of the new GM." In explaining the decision, he cited the parent company's "improved financial position" and its newfound confidence in the "sustainable profitability" of the subsidiary. At the end of the letter, Henderson also expressed his appreciation for the "involvement and support of the German government and other European governments."

A German chancellor has rarely been given such short shrift by the chief executive of an industrial corporation. Merkel and half the German cabinet had spent more than a year in negotiations with the US company so that GM's German subsidiary, Opel, could be sold to a consortium of investors headed by the Canadian-Austrian automotive supplier Magna and the Russian Sberbank. The matter seemed to have been settled -- but then GM management performed an about-face last Tuesday. In doing so, it inflicted serious damage on the chancellor, who met with US President Barack Obama and gave a noteworthy speech to the US Congress on the same day.

The surprise coup from Detroit triggered an unprecedented wave of outrage in Germany. Tens of thousands of Opel employees staged protests outside plants in the cities of Rüsselsheim, Bochum and Eisenach, shouting "GM, get lost!" Politicians at the federal and state levels outdid each other with tirades against what Social Democratic Party opposition leader Frank-Walter Steinmeier dubbed the American "impertinence" and North Rhine-Westphalia Governor Jürgen Rüttgers, a member of Merkel's conservative Christian Democratic Union (CDU), described as the "ugly face of turbo-capitalism."

Even the pro-business Free Democratic Party (FDP), the junior partner in Merkel's new coalition government, which just a few weeks ago had been sharply critical of the former administration's rescue plans for Opel, joined in the cross-party diatribes. Economics Minister Rainer Brüderle, who belongs to the FDP, said the GM decision was "completely unacceptable."

Political Humiliation

The real motive behind all this indignation was to cover up a political humiliation of the first degree. Rarely has an administration lost its bearings as much as the Merkel-led "grand coalition" of the Christian Democrats and Social Democrats did in its attempt to forge a new European auto company under the name "New Opel."

German auto executives were not the only ones who felt that the chancellor's plan to mold a Canadian-Austrian automotive supplier, Russia's leading savings bank, the European GM subsidiaries and billions in taxpayer money into a competitive, global company was a ludicrous idea. The plan was also widely criticized abroad. The United States feared that Western know-how would be lost to Moscow, while many in Europe were convinced that Germany was trying to unilaterally protect jobs in its domestic industries. Ironically, Germany -- which usually likes to see itself as a strong advocate of fair competition -- was blatantly promoting its national industrial interests. "This deal stinks," the British newsmagazine The Economist wrote in a recent editorial.

Detroit's rebuff not only affects the chancellor, but also the state governors involved, who had hastily joined the ranks of those in favor of rescuing Opel. Hesse Governor Roland Koch (CDU), who was considered an expert on economic issues and the United States, was forced to admit: "We fell flat on our faces."

In the end, the Opel sale failed because of the same dilettantism that had characterized the government's initial approach to the sale almost exactly 12 months earlier. A controversial letter from then- Economics Minister Karl Theodor zu Guttenberg, where he wrote that Germany was prepared to support the investor chosen by General Motors "irrespective of the investor's identity," provided GM executives with the excuse they needed to allow the deal to fall through at the last minute. Officials at the European Commission had expressly warned Germany against sending the missive. "That letter was critical to the way the vote turned out," says a management consultant familiar with the negotiations.

Ongoing Plight

At stake are more than 25,000 GM jobs in Germany (see graphic) -- and the future of the country's most important industrial sector. The failure of the German plans for Opel shows that the government lacks a strategy for addressing the ongoing plight of the auto industry.

Between January and February of this year alone, more than 58,000 jobs were lost at German carmakers and their suppliers. Daimler and BMW are wrestling with the massive costs of developing the electric cars of the future, while at the same time being faced with dramatic declines in sales.

Securing the future of Germany's most important industrial sector in a global battle for market share ought to be a top priority for the country's federal and state governments. But German politicians prefer to behave like teachers who, wanting to make sure their slowest students get enough attention, suspend the lesson for the rest of the class. Last week, officials at the relevant ministries went back to the drawing board to form, yet again, new teams to continue negotiating with GM over possible government bailout funds for Opel.


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