GM's Fast Turnaround Slams into the Euro CrisisBy and
Since exiting bankruptcy last July, General Motors has revived its once-fusty product line, repaid $8.4 billion in bailout loans to U.S. taxpayers, and logged its first quarterly profit since 2007. That swift turnaround has set the stage for an initial public offering for America's largest car company by early 2011.
The fast-mending automaker encountered disappointment on June 1, however, when a German government panel refused GM's request for 1.1 billion euros ($1.3 billion) in German aid for its money-losing Opel unit. The group of outside advisers assumed a "very critical attitude" toward GM's application, Economy Minister Rainer Bruederle said on June 1. "The advisory panel's recommendation will carry major weight for the further decision-making process."
With Chancellor Angela Merkel's cabinet scheduled to hold a two-day meeting starting June 6 in Berlin to single out further budget cuts necessary after joining in the bailout of Greece, politicians see little room for helping Opel. GM is pursuing aid from Germany and other European nations even after posting first-quarter net income of $865 million.
"We cannot possibly tell the people 'you have to put up with higher costs' while we're propping up a company that is perfectly able to cope by itself," said Michael Fuchs, deputy member of parliament's economics committee. "I don't expect the government to grant aid."
A person familiar with GM's plans says the company can probably cope without Merkel's aid—but would probably then cut more German jobs.
The steering committee for aid assistance, led by Deputy Economy Minister Bernhard Heitzer, was set to meet June 4, with a final decision on GM's petition expected the following week, Bruederle said. "It's an open secret that I have viewed the whole matter with skepticism from the beginning," he said.
GM is seeking European aid of 1.92 billion euros to help fund Opel's 3.58 billion-euro reorganization. It's asking Germany to provide loan guarantees of 1.1 billion euros, according to a report commissioned by the government and obtained by Bloomberg News. Opel says it already has pledges for 437 million euros in guarantees from Austria and Spain, plus 333 million euros from Britain; Germany is the lone holdout.
"At the end of the day, it's a decision by the [German] government steering committee," Stefan Weinmann, a spokesman for Opel said on June 1, prior to Bruederle's statements. "We're going through the process."
GM plans to eliminate 8,300 of Opel's 48,000 positions. European governments pledging aid are seeking to avoid factory closures and minimize job cuts. GM has already said it will shut a plant in Belgium if it doesn't find a buyer for the site by late September.
GM reached an agreement with Opel unions on May 21 to cut labor costs by 265 million euros a year. The savings are tied to GM commitments to invest in such new products as a convertible and a minicar. Klaus Franz, Opel's top labor leader, said the agreement would not be affected by a German decision on aid because lost salary and bonuses will be returned to employees if GM fails to fulfill investment commitments. Still, Germany's biggest union, IG Metall, will stage a protest rally in Frankfurt on June 7 to pressure Merkel to provide guarantees.
The bottom line: After a painful bankruptcy, General Motors is on the mend. That's making it harder for the carmaker to get German government aid for Opel.