German states plan to talk money for Opel | Business| Economy and finance news from a German perspective | DW | 14.06.2010
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German states plan to talk money for Opel

Four German states with Opel plants will meet on Tuesday to discuss loan guarantees for the US-owned, financially-troubled German carmaker. Whether they say "ja" after a federal government "nein" is unclear.

Cloud over Opel sign at factor

A dark clould of uncertainty still hovers over Opel

After more than a year of tough negotiations over Opel's future, industry and financial experts agree the carmaker doesn't need to hear another "jein", a German expression for "yes and no", on the topic of public aid.

That was more or less the response of Chancellor Angela Merkel last week when she rejected Opel's request for loan guarantees at the federal level but said the company was free to seek aid from state governments and other groups, including the European Investment Bank.

Explore options

The states Hesse, North Rhine-Westphalia, Thuringia and Rhineland-Palatinate have agreed to explore options at a Tuesday meeting after the federal government rejected the auto manufacturer's request for aid.

Opel had applied for 1.1 billion euros in federal guarantees from a pool of government bailout money, dubbed the "Deutschlandfond", to back private-sector loans. US-based auto giant General Motors, which owns Opel, says it needs more than 3 billion euros to restructure its European operations.

Chancellor Merkel in front of Opel sign

Chancellor Merkel is up and down on helping Opel

When announcing the government's decision last week, Chancellor Merkel said the four states were "able" to give loan guarantees. And all four have signaled a willingness to help financially. To what extent will be the focus of Tuesday's meeting.

The four states are eager to help Opel for a number of reasons, but the biggest is jobs. Plants in their states employ more than 23,000 people - half of Opel's total workforce in Europe. And thousands of more jobs are linked to providing car parts and other goods and services to the plants.

There is state money. Hesse, for instance, has a 1.5 billion euro guarantee program for 2010. Last year the state lent Opel 347 million euros as part of an emergency bridge loan. The loan has since been repaid with interest.

"Complete catastrophe"

But speculation is rife that the states have yet to agree to a coordinated approach and could walk away from the talks without a plan.

"The situation with Opel is a complete catastrophe," said Christoph Stuermer, an industry analyst with IHS Global Insight in Frankfurt. "The entire process has been terribly mismanaged by politicians."

Poster saying We are Opel

Opel employees, more than 23,000 in Europe, want to keep their jobs

Helmut Becker, director of the Institute for Economic Analysis and Communication in Munich, is highly critical of German taxpayers being forced to cover any expenses for the US carmaker.

"Why should anybody subsidize carmakers now that their business has bounced back, with sales up 30, 40, even 50 percent depending on the market?" Becker asked. "Why give them money in the middle of a boom?"

Financial responsibility

Not only that, Becker argues that if GM is so determined to keep Opel, then the parent must accept financial responsibility for its subsidiary.

Last year, Germany was ready to back a bid for Opel led by Canada's Magna International, but the US carmaker reversed its plan to sell the German company.

GM is in a difficult position to negotiate deals. The company would have collapsed if the US government had not sweetened a structured insolvency with around $50 billion (41 million euros ) in public funds. The government holds a majority stake in the company. And as long as the carmaker, dubbed "Government Motors" by critics of state aid, remains state-owned, it can expect to face political winds when trying to tap funds.

Author: John Blau
Editor: Sam Edmonds

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