GM talks with Europe break down, Chrysler future on hold

29th May 2009, Comments 0 comments

Both GM and Chrysler are being kept alive by massive assistance from Washington but their prospects now depend on further help from foreign partners and governments.

Berlin -- The US auto industry faced an uncertain future Thursday after talks with Germany on the fate of General Motors' Opel unit collapsed in acrimony and as Chrysler waited for a court to decide its future.

Both GM, the largest US auto manufacturer, and Chrysler, the third biggest, are being kept alive by massive assistance from Washington but their prospects now depend on further help from foreign partners and governments.

Battered by dwindling consumer demand and bad product choices, the once-mighty icons of the US auto sector are in turmoil. GM appears to be heading toward bankruptcy, a step already taken by Chrysler.

The fate of GM Motors hinges in part on shedding its European operations, notably German unit Opel, which employs 25,000 people in Germany.

But all-night talks among German and US government officials, as well as GM representatives, to find a buyer for Opel fell apart early Thursday, with Germany accusing GM and US negotiators of scandalous bargaining tactics.

While the final choice of a buyer rests with GM and the US government, German involvement is critical as Berlin is prepared to provide billions of euros (dollars) in loan guarantees to any potential investor.

At the last minute, however, Germany said GM and the US government had asked for an extra 300 million euros (420 million dollars) in temporary loans from Berlin to keep Opel afloat, a tactic slammed by Finance Minister Peer Steinbrueck as scandalous.

"We were unpleasantly surprised when this new demand came out of the blue at 8:00pm local time (1800 GMT)," Steinbrueck told reporters.

"We found that pretty scandalous."

Fresh talks are scheduled for Friday, with Berlin hoping to name its preferred bidder ahead of GM's likely bankruptcy on June 1, a deadline set by the US government for the company to come up with a rescue plan.

German Foreign Minister Franz-Walter Steinmeier on Thursday told reporters he was "very confident" that talks on Friday would result in a deal.

Declaring Opel insolvent also remains an option, German officials said.

For the moment, two bidders, Italian car giant Fiat and Canadian auto parts maker Magna International, remain in the race after a third, Brussels-based investment firm RHJ International, pulled out during the talks.

Magna's offer is still seen as the front runner, with unions and centre-left Social Democrat members of the governing coalition backing it.

It has teamed up with Russia's top bank, state-controlled Sberbank, for a bid that would see precious metals tycoon Oleg Deripaska's truck company GAZ making Opel vehicles in Russia.

For its part, Fiat wants to combine GM's European and Latin American operations with Chrysler, in which it has secured a 20-percent stake, to create the world's second largest automaker after Toyota of Japan.

Chrysler's future meanwhile rests with a bankruptcy court in New York.

Judge Arthur Gonzalez was set Thursday to hold a second and possibly decisive day of hearings on Chrysler's bid to seek salvation as a partner of Fiat.

Fiat chief Sergio Marchionne flew to the United States Thursday after spending all night in Berlin pushing his bid to take over Opel, a company source said.

"Marchionne has left for the United States directly from Berlin to work on Chrysler," the Fiat source said, without elaborating on his planned itinerary.

Judge Gonzalez was widely expected to overrule hundreds of objections to the Chrysler rescue plan and approve the bankruptcy but on Wednesday he said more witnesses were to be heard Thursday and possibly even Friday.

If Gonzalez approves the bankruptcy, a new-look Chrysler could emerge within days, according to President Barack Obama's administration, which is spearheading the plan and providing emergency funding.

Under a worst-case scenario Fiat could abandon the tie-up, sending Chrysler into liquidation.

Opponents to the deal with Fiat include creditors and many of the car dealerships who face being shut down but supporters argue that it is the only option on offer.

Fiat executive Alfredo Altavilla, an architect of the proposed partnership, warned that "if this agreement is not closed by June 15 we will need to reconsider our ability to close the transaction."

At the same time, Chrysler could be brought back to profitability in the same way Fiat was rescued from its own financial problems, starting in 2004, he added.


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