GM to restructure Europe unit without state aid

16th June 2010, Comments 0 comments

General Motors gave up on Wednesday on getting state aid from European governments for its loss-making Opel unit, saying it now had the financial firepower to finance 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."

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

With GM's credit rating so weak, having cast-iron government guarantees would have helped it raise money on capital markets much more easily and 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 which foresees around 8,000 job cuts.

Its decision to throw in the towel followed the refusal last week by Germany, home to 23,000 Opel employees, half the European total, to provide the lion's share of the guarantees or 1.1 billion euros' worth.

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

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

"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."

"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," Reilly said.

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

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

Chancellor Angela Merkel, whose popularity has fallen sharply in recent months, is seen as wary to hand out more taxpayers' money after promising tens of billions of euros in guarantees to prevent a eurozone collapse.

The company was due to hold telephone news conference at 1430 GMT.

© 2010 AFP

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