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Germany

European Carmakers Gear Up for US Auto Industry Bailout

General Motors has suffered heavy losses due to the global credit crunch, and threat of insolvency could have great consequences for its German subsidiary Opel, which is still making money for the US automaker.

Red traffic light outside opel plant at night

Troubled times for General Motors could spell doom and gloom and for Opel

Even before executives appear before US Congress, General Motors has already warned it needs to cut costs in Europe dramatically if it is to survive into next year. In a letter sent to staff, GM Europe boss Carl-Peter Forster said there was no alternative to aggressively reducing cost structure.

The goal was to "lower labor costs by at least 10 percent through cuts in salary costs and reductions in working hours," Forster said.

Protestors strike for better pay

Unions will not take wage cuts lying down

However, union representatives have categorically ruled out such cuts and blame management failings -- not just slumping car sales around the world -- for the company's problems.

GM would have to present a sustainable business plan for the future before any compromises over cost cutting measures could be made, Klaus Franz, the head of the company's works council, told reporters at Opel's headquarters in Ruesselsheim.

While there is no guarantee that wage cuts now would safeguard worker's jobs later, Wolfgang Meinig from the Automobile Industry Research Center in Bamberg said it would be a mistake not to accept cutbacks.

"We are merely at the beginning of a long and difficult crisis in the automobile industry," Meinig told DW-WORLD. "A recovery is two years away and now is not the time for any wage increases."

Possible European Sell-offs

The troubles at its parent company have raised the possibility that Opel could flee the General Motors nest after nearly 80 years. After undergoing a series of streamlining measures over the last few years, Opel itself has been turning a profit.

Discontent is growing among Opel workers that these profits are disappearing into a "black hole" in the United States. Speculation intensified as the news broke on Wednesday that GM could be on the verge of selling its Swedish subsidiary Saab.

Opel workers inspect cars on assembly line

Some Opel workers would prefer the car maker to go it alone

"I cannot rule it out that Opel will break away from General Motors," said Rainer Einenkel, head of the works council at the Opel plant in Bochum.

Yet GM is unlikely to let Opel go too easily. The German carmaker has invested heavily in a development center for new technologies that are seen as vital to ability to compete in the international auto industry.

"After 80 years I think it will be difficult to separate the links between Opel and GM that have become intertwined," Meinig said. "It would be naive to think GM would let an innovative subsidiary with a good reputation go."

Government intervention

Chancellor Merkel walks to podium in front of German flag

The German government could be on its way to help Opel

Executives from Opel have appealed to the German government to act as the guarantor of loans amounting to around 1 billion euros next year should General Motors go bust. German Chancellor Angela Merkel said the government was ready to help Opel weather the crisis but would not give the firm subsidies. Federal assistance would be subject to a series of conditions, aimed at ensuring German money stays in the country to secure German jobs and is not used to bail out General Motors.

Some economic experts in Germany have called for a partial nationalization of Opel. Juergen Trittin, the deputy-leader of the Green Party, said this option would be "the most sensible instrument" in the current financial climate.

Although Opel sales are down 9 percent compared to last year, Hans Demant, the head of Opel Germany, insisted that there was little risk to the tax-payer if the government did provide assistance.

"The problem is only with our parent company in the US," he told German radio, adding that the company would probably not need the federal funds.

In the US, however, the future looks bleak for GM if external intervention is not forthcoming. The firm is currently losing around 1 billion dollars a month and the threat of bankruptcy is very grave.

If the US parent company doesn't receive assistance soon it may prove too late for Opel. Meinig said GM will drag Opel down with it, if the company does go under.

"The German government wants to know how deep Opel's commitments to GM are," said Meinig, "I don't believe Opel will be able to provide that information in time to receive liquidity guarantees before Christmas."

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