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Business

To Bail Out or Not -- Berlin Can't Decide About Opel

Chancellor Angela Merkel held talks Monday on the future of ailing carmaker Opel as a debate flared on the company's request for state aid. But the government made no promises, and gave no cash.

An opel factory and red light

The light is still red regarding state aid Opel had hoped Berlin would promise

Merkel said after meeting with leaders of Adam Opel GmbH that it was "not yet determined" whether the automaker would be given one billion euros ($1.25 billion) in loan guarantees from the German government.

Opel is seeking credit guarantees from Berlin to counter a financial squeeze, triggered by dwindling sales and problems with its parent company General Motors.

Taking part in the meeting at the chancellor's office were Opel chief executive Hans Demant, the head of GM's European operations Carl-Peter Forster and the head of the company's employees' council Klaus Franz.

Opel was expected to present details of its financial situation and explain why it needed the government to stump up an estimated 1 billion euros ($1.27 billion) in guarantees.

Merkel said that government officials planned further talks on the issue and should make a decision by Christmas.

Industry-wide aid rejected

Finance Minister Peer Steinbrueck, who also took part in the talks, earlier ruled out a general program to stimulate the country's automobile industry.

Steinbrueck and Glos at a press conference

Steinbrueck, left, and Glos are wary of a state aid package for Opel

"The state cannot act as a replacement for private consumption and is not responsible for the errors of the industry," he told the mass-circulation Bild newspaper.

Economy Minister Michael Glos had also voiced opposition earlier to a bail-out plan for the industry, hit by a major drop in sales due to the global economic slowdown.

An Opel spokesman has said the carmaker would only make use of the guarantees if the situation of GM deteriorated to the point that production and project development at its German subsidiary were affected.

GM could get the cash?

Glos, who was also at Monday's meeting, expressed concern that any financial support for Opel could find its way to GM, which is facing a serious cash shortage.

GM sign and US flags

GM, Opel's American parent, is hurting badly

"We certainly have to know whether the money will remain in Germany," Glos told German television. "Issues related to the American parent still need to be cleared up."

The US Congress was due to meet this week do discuss a request by GM and fellow automakers Ford and Chrysler for billions of dollars in emergency aid to help them out of the current crisis.

Close to one-in-five workers are employed directly or indirectly in the German automobile sector.

Opel employs 25,700 workers at four factories in Germany, but experts say an additional 50,000 jobs would be at stake if the company were allowed to go to the wall. Along with other German carmakers such as Daimler and BMW, Opel has announced temporary plant closures after a huge drop in orders.

Setting a precedent?

Opel logo in rain

The short-term forecast is not great for Opel

The state governments of Hesse, North Rhine-Westphalia and Rhineland-Palatinate, where Opel manufacturing plants are located, have signalled a willingness to participate in loan guarantees.

Government spokesman Ulrich Wilhelm said Berlin wanted to avoid setting a precedent. He said the government would do all it could to help the ailing carmaker, but had to take into consideration EU regulations governing competition and subsidies.

Analysts said granting state aid to a single company could be viewed as discriminatory by Brussels and meet with opposition. EU competition regulators might take a dim view of any state help to Opel because of it being deemed unfair to other European carmakers such as France's Renault or Italy's Fiat. The German parliament last week approved a tax rebate for purchasers of new cars as part of a 12-billion-euro package designed to stimulate domestic consumption.

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