Blow for GM as Berlin rejects Opel aid request

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Germany dealt General Motors a major blow on Wednesday as Berlin turned down a request for 1.1 billion euros (1.3 billion dollars) in loan guarantees for its loss-making Europe unit Opel/Vauxhall.

Economy Minister Rainer Bruederle said he had rejected GM's application for help for Opel from a special fund set up to help firms hit by the recession because the US auto giant had enough funds itself.

"I am confident that Opel has a good future without credit guarantees," Bruederle said.

"GM is naturally very disappointed, as is Opel, with this decision," GM Europe chief Nick Reilly told reporters. "I don't particularly understand the reasons why."

But the door to public money may not be definitively closed to the Detroit giant, which emerged from bankruptcy and posted its first quarterly profit in three years in the first three months of 2010.

German Chancellor Angela Merkel on Thursday was set to discuss possible options with the heads of the four German states where Opel has four plants and employs some 23,000 workers, around half the European total.

"We understand that the Laender, the federal states of Germany, have been very supportive of Opel and of our application in the past, and it is quite possible, I understand, that we might be able to achieve some of the same end through guarantees from the states," Reilly said.

GM is prepared to pump 1.9 billion euros into its restructuring plan, which foresees around 8,000 job cuts, and wanted 1.8 billion euros in loan guarantees from European governments including the 1.1 billion euros from Germany.

Reilly said that the government in Britain, where GM owns Vauxhall, had agreed to provide around 330 million euros in guarantees and that he was confident Spain would offer around the same amount.

He said that Berlin's decision would not affect GM's restructuring plans.

"It's certainly my objective to carry out the plans we have," he said.

Unions, which fear that GM will now close some of its German plants, immediately slammed Bruederle's decision, with Opel works council chief Klaus Franz calling it "shameful."

"The economy minister is leaving Opel staff standing in the rain, counter to the facts and counter to the interests of the plants in Germany," Franz said.

Germany was ready last year to provide guarantees to Opel if GM sold it to Canadian auto parts maker Magna and Russian lender Sberbank, but GM scrapped the deal in October, annoying Berlin in the process.

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.

Merkel "would have difficulty justifying aid for Opel," said Stefan Bratzel, head of automobile research at Germany's University of Applied Sciences (FHDW) in Bergisch Gladbach.

© 2010 AFP

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