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Business

German State Aid for Opel Hangs in Balance

German Chancellor Angela Merkel said conditions were not yet ripe for offering state aid to troubled carmaker Opel as the GM subsidiary reportedly threatened to close three plants in Europe and sack 11,000 people.

Yellow flag with Opel logo

Like many car makers, Opel has been hit by the economic crisis

"We will provide assistance if the benefits for the people outweigh the losses," the chancellor said in her weekly podcast. "Unfortunately, we have not yet reached this point."

At talks with German Economics Minister Karl-Theodor zu Guttenberg on Friday, Opel's US parent General Motors (GM) promised to revamp a rescue plan dismissed by the government as inadequate.

"The concept needs to be improved and clarified," said the chancellor, who promised to do everything in her power to find a solution acceptable to Opel's 25,000 employees.

Opel has requested 3.3 billion euros ($4.1 billion) in state guarantees, but is believed to require a much larger sum if it hopes to stay afloat.

Massive Layoffs?

Angela Merkel

Germany's chancellor is still not ready to commit to a state aid package for Opel

According to the German weekly Der Spiegel to be published on Monday, the plan submitted to government officials on Friday called for the shutdown of factories at Bochum in western Germany, Eisenach in the east and Antwerp in northern Belgium.

With 11,000 people losing their jobs, according to this scenario, Opel would try to save some $1.2 billion (949 million euros) in staff costs, the magazine said. An alternative proposal would be to cut only 3,500 jobs but lower wages across the board, it added.

Another weekly, Focus, said Opel was asking for four billion euros in state aid, not the 3.3 billion reported earlier, though portions of it could come in the form of guarantees or credits.

Focus noted that Opel had never paid a single cent in taxes to the German state, as any profits it made were transferred to Detroit.

Complex structures

Karl-Theodor zu Guttenberg, left, and GM Europe President Carl-Peter Forster speaking to journalists

Economics Minister Guttenberg, left, led inconclusive talks with Opel

The complex ownership structures between Opel and its Detroit-based parent company need to be taken into consideration before Germany pledges any financial assistance, analysts said.

Germany is wary of providing state aid to Opel without guarantees that the money will not be siphoned off to the United States.

German Interior Minister Wolfgang Schaeuble suggested on Friday that Opel should consider going into insolvency, saying such a move would not mean that the company would go bankrupt.

On Saturday, Deputy Economics Ministry Dagmar Woehrl said Opel could avoid going belly-up only if this quickly provided "an improved outlook."

She said it was "highly questionable and unlikely" that the government would pump large amounts of taxpayers' money into a company that plans to close plants and lay off thousands of workers.

Global crisis, local politics

employees of the Opel car plant in Bochum entering the main gate

Many Opel employees are fearing for their jobs

Like many other automobile manufacturers, Opel and GM have been hit by a massive fall-off in sales triggered by the global economic downturn.

Last week GM posted a $30.9-billion loss for 2008 and issued a warning that 2009 would be a challenging year, despite receiving $13.4 billion in aid from the US government.

GM has plants operated by subsidiaries Belgium, Poland, Spain and Sweden in addition to those in Germany and Britain.

With general elections due on Sept. 27, the future of Opel has become a high-profile political issue in Germany.

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