GM tweaks rescue plan as Chrysler goes back to court

30th May 2009, Comments 0 comments

Italy's Fiat said earlier that it did not want to take part in talks because it had insufficient information on Opel and because Berlin had not yet worked out how it planned to provide financing.

Berlin -- US auto giant General Motors fine-tuned Friday a government-backed rescue plan while rival Chrysler awaited a key bankruptcy ruling and German officials cast doubt on efforts to save Opel.

In Berlin, government spokesman Thomas Steg said a meeting with Opel bidders set for later in the day "will only start if interested parties have provided something substantial."

Italy's Fiat said earlier that it did not want to take part in talks because it had insufficient information on Opel and because Berlin had not yet worked out how it planned to provide financing.

And Canadian auto part group Magna, the only other Opel bidder, could be about to throw in the towel, news reports said, after GM put new demands on the table at talks in a luxury Berlin hotel.

"GM doesn't appear to have the will to reach a conclusion. New demands are being added all the time," Dow Jones Newswires cited a source as saying.

In New York, Chrysler's future depended on a decision by the US Bankruptcy Court, where the automaker is seeking approval for a plan to retool the company in an alliance with Fiat.

The Italian group seeks to create the world's second biggest car maker after Japan's Toyota by absorbing both Chrysler and Opel.

Chrysler chief executive Robert Nardelli was upbeat, saying a finalised deal with Fiat was possible as soon as Friday.

Judge Arthur Gonzalez was widely expected to rule in favour of the bankruptcy deal.

GM, meanwhile, was putting the final touches on a rescue plan that would put Washington in the driver's seat with up to 72.5 percent of the company.

The once mighty US auto industry is reeling, prompting massive intervention by President Barack Obama's administration to prevent total collapse and a new body blow to a national economy already in deep recession.

GM said Thursday in a regulatory filing that the US Treasury agreed to the plan to create a new government-controlled company that buys the assets of the ailing automaker.

Bondholders who had rejected an earlier proposal support the new plan, GM added.

The US government could provide "in excess of 50 billion dollars" (36 billion euros) to this reorganization that would be converted mainly to stock, according to GM's filing with the Securities and Exchange Commission.

The US turmoil reached European shores when the collapsed Opel talks stirred a diplomatic flap between the US and German governments.

Berlin is also under pressure from neighbours concerned it might seek to save 25,000 Opel jobs in Germany at the expense of some of the 30,000 others in other European countries.

In addition, the German government faces general elections in four months that have already raised tensions within the conservative-social democrat ruling coalition.

Opel bidders appeared to draw a line in the sand on Friday, with Italian car maker Fiat saying it could offer no more for the German firm.

Fiat "has decided not to attend the meeting tentatively scheduled by the German government," the company said in a statement.

Magna, which has teamed up with Kremlin-controlled Russian bank Sberbank and precious metals tycoon Oleg Deripaska's auto company GAZ, also appeared ready to walk away from the table.

Asked in an interview with Spiegel magazine released Friday if she ruled out Opel filing for insolvency, Chancellor Angela Merkel said her government "was making every effort to find another solution."

"But a direct government stake in Opel is out of the question," Merkel added.

Berlin talks which lasted all night from Wednesday to Thursday had sought a suitable buyer and a financing structure for temporary government loans, but stalled when German officials accused the US side of increasing its demand for loans by 300 million euros (416 million dollars).

The surprise prompted furious reactions, with Finance Minister Peer Steinbrueck slamming the US negotiating tactics as "scandalous."

Although the final decision on the fate of GM's European operations lies with Detroit and Washington, Germany has a key role to play as it would provide billions of euros in loan guarantees to a suitable bidder.

Friday's talks were also aimed at creating a trusteeship model that would keep Opel operating in the event of a GM bankruptcy with the help of a direct 1.5-billion-euro government loan.

Back in the New York court, Chrysler sought to counter arguments from creditors, car dealers and pension holders who accuse the US government of circumventing their legal rights in agreeing to Chrysler's bankruptcy.

Almost 800 dealerships are to disappear under the plan.

Nardelli said the sacrifice of those dealerships was part of a scheme to give Chrysler a new lease of life. "By keeping the business viable we saved 3,000 dealers," he claimed.

The third-largest US automaker was forced to file for bankruptcy protection on April 30 and agreed to an alliance with Fiat that would initially give the Italian company a 20 percent stake.

In return, Fiat would allow access to its technology to enable the US carmaker to make the smaller, greener cars that are increasingly in demand.

If Gonzalez approves Chrysler's bankruptcy, a new-look company could emerge within days, according to the government.

If not, Chrysler faces a grim future, with a worst-case scenario being Fiat abandoning the tie-up and the US automaker going into liquidation, with massive job losses.


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