GM to finance Europe overhaul without state aid

16th June 2010, Comments 0 comments

General Motors abandoned on Wednesday its quest for European state aid for its loss-making Opel unit, saying it had the financial firepower to pay for a restructuring itself.

"The validity and reasons for requesting government guarantees have ... not changed but the process has proven to be much more complex and longer than anticipated," the US auto giant said in a statement.

"GM's recently improved financial strength has also been a catalyst for making this decision."

It brought the US automaker back almost to where it was in November 2008 when GM first said it would seek state aid for Opel.

The US group wanted 1.8 billion euros (2.2 billion dollars) in guarantees from European governments including Germany, Britain, where it owns Vauxhall, Spain, Poland, Austria and Belgium.

With GM's weakened credit rating, cast-iron government guarantees would have helped the US group raise money on capital markets at lower interest rates.

GM, which emerged from bankruptcy and posted its first quarterly profit in three years in the first three months of 2010, had been prepared to put 1.9 billion euros into a restructuring plan that would cut around 8,000 job cuts.

GM's decision to go it alone followed a refusal last week by Germany, home to 23,000 Opel employees, half the European total, to provide the lion's share of the guarantees, around 1.1 billion euros.

The German government, which last year was irked by GM's 11th-hour decision not to sell Opel to Canadian auto parts maker Magna and Russian lender Sberbank, said the Detroit giant had enough cash of its own.

That decision was announced just after German Chancellor Angela Merkel had made an otherwise successful visit to the United States.

German Economy Minister Rainer Bruederle responded to the announcement on Wednesday by saying that "GM is making a profit and has the means" to restructure Opel.

"I feel reinforced in my decision" to refuse state guarantees, he told a press briefing.

Asked about the risk to German jobs, Bruederle replied that there were "always risks when you make products that do not sell."

In a statement issued by GM Europe, its chief Nick Reilly said: "We appreciate the support indicated by certain governments, especially the UK and Spain, but we need to move on.

"The decision of the German government last week was disappointing and means that the conclusion of these guarantees is again likely to be months away."

Reilly added: "To be clear, our funding needs have not changed and we were led to believe that loan guarantees made available to other European companies under the EU program to help offset the impact of the global economic crisis, would be equally available to Opel/Vauxhall.

"But, after a very long process defined by governments, this has turned out not to be the case."

Britain had committed guarantees for 330 million euros of bank loans and a similar amount had been indicated from Spain.

Germany was set last year to provide guarantees for Opel if GM sold it to Magna and Sberbank, but GM scrapped the deal in October.

Merkel, whose popularity has plunged in recent months, is seen as wary to spend more taxpayers' money after promising tens of billions of euros in guarantees to prevent a eurozone collapse.

GM Europe was to hold telephone news conference at 1430 GMT to comment further on its decision.

© 2010 AFP

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