German Government Taskforce Says GM's Plans for Opel Do Not Qualify for State Aid

The German government taskforce charged with the task of analysing General Motors' (GM's) restructuring plans has said that the proposals are "unqualified for government loan guarantees", according to a Financial Times (FT) report. The five-person taskforce which is advising the German government on GM's plans for Opel/Vauxhall comprises high-ranking government officials from the Economics and Finance Ministries, Chancellor Angela Merkel's main economic adviser and a senior Lazard banker. This recommendation directly contradicts the opinion of the independent auditor that Opel hired to review its restructuring plans. Warth & Klein said the plan was "sound and viable" and they also concluded it was "possible to rescue Opel" under the plan. The findings of the government task force are likely to strengthen the resolve that has been hardening among senior members of Merkel's government that GM should not receive significant loan guarantees from Germany. However, the source for the FT story was a member of one of the four German regional state governments that play host to Opel plants in the country.

These four regional state governments have been at loggerheads with the federal with German federal economic minister on the subject of state loan guarantees and how to best proceed with GM on the matter. While the four state governments in question - Northrhine-Westphalia, Hessen, Thuringia, and Rhineland-Palatinate—all see GM's plans as far from perfect they at least see them as a basis for discussion. One official was quoted by the FT as saying that, "The problem is that Brüderle sees the glass as half-empty and wants to reject GM's aid application. The states see the glass as half-full, and want to use GM's proposal as a basis for further negotiations." State officials said the governors of the four states on Friday (12 February) wrote to Merkel reminding her of Berlin's duty first to consult with them about loan guarantees. GM has already made a formal application to the German government for the 1.5 billion euro of loan guarantees, and Reilly has said that GM would seek a further 1.2 billion euro in aid from the United Kingdom, Spain, Poland and Austria. GM will supply a further 600 million euro of its own cash to fund the full 3.3 billion euro.

GM Europe and Opel chief executive Nick Reilly last week presented GM's comprehensive turnaround plan for Opel/Vauxhall, which included plan savings of 11 billion euro and a full model renewal plan (see Europe: 10 February 2010: Opel/Vauxhall CEO Unveils "Plan for the Future"). At the time he said that he hoped Opel would have the details of the restructuring plan finalised by the end of March. However, it is not just the German government that GM needs to convince. It also has yet to negotiate a comprehensive labour agreement, with the German workers council being particularly vocal in its opposition to the restructuring plans, particularly the plan to close the Antwerp plant in Belgium completely. However, while relations between the works council and Opel/Vauxhall's new management team have been cool and negotiations between the two parties have been stalled, it appears that this may be about to change. The Handelsblatt newspaper has obtained a copy of a letter from works council leader Klaus Franz to Nick Reilly which claimed that the works council was willing to return to negotiations, but only under certain conditions. The Handelsblatt report said that Franz demanded a new model to be produced at the Antwerp factory, increased independence for Opel from GM, full access to GM's intellectual property and financing from the Russian government, although it is not clear in what context the latter condition would be applied. The Russian government was the de-facto backer of the abortive Magna International bid for Opel, which GM rejected after over six months of negotiations in December last year.

Outlook and Implications

GM Europe chief executive Nick Reilly and his management team will need all their years of experience and diplomacy skills as they consider their response to the German government's opposition to supplying the company with loan guarantees. The company's relations with the German government will be largely handled by the new vice-president of government affairs Volker Hoff (see Europe: 29 January 2010: Opel Adds Former German Politician to New Management Team), who is an experienced operator in the arena of German politics. However, despite its previous role in the German political system, this unlikely to be an easy task to achieve, not least because of the severe embarrassment which was caused by GM's decision to retain Opel/Vauxhall, reversing a decision to sell the unit to automotive component manufacturer Magna. However, while the issue of securing the German government loan guarantees is fundamental to the restructuring plan that Reilly is trying to implement, the attitude of the German workers council, if the Handelsblatt article accurately reflects their demands, may be of even more concern to Reilly and his team. This list of demands is extravagant and is one which GM and Opel/Vauxhall can ill afford. It is unclear how, for example, Franz expects Opel to gain more autonomy from GM while at the same time having unhindered access to GM's global intellectual property portfolio.