IHS Global Insight Perspective | |
Significance | The German government has been accused of suppressing information helpful to General Motors' (GM's) attempts at securing loan guarantees for Opel. Meanwhile Spain has confirmed that it will supply 300 million euro of loan guarantees to help the Zaragoza plant. |
Implications | The decision by the Spanish national and regional government to confirm loan guarantees, albeit at a lower level than is being sought from Germany, will heap further pressure on the latter. The level of obfuscation and procrastination by the German government on the matter of loan guarantees has reached embarrassing levels. |
Outlook | All the involved parties can see that the strategy of the German administration is to spin out the decision for so long that GM eventually gives up and announces it no longer requires German loan guarantees. However, the German government risks further antagonising union members if indeed it is withholding relevant information on loan guarantees. |
A senior German politician who represents the state of Thuringia, where Opel's Eisenach plant is located, has claimed that the German federal government is holding back information that would aid General Motors' (GM's) long-running bid to secure 1.1 billion euro (US$1.31 billion) in loan guarantees for Opel. According to a Reuters report, Thuringia's Economics Minister Matthias Machnig said that he regarded the Berlin government as using "marked cards" against GM, as it looks to find a way of not granting the loan guarantees without enraging the Opel works council and the regional governments like Thuringia which host Opel plants. Machnig also heavily criticised a two-page statement he received at a meeting of a government-appointed council of independent experts considering Opel's request for state loan guarantees, claiming that the government had been highly selective in the information contained in the summary. Machnig said, "It is unbelievable that the federal government to this day has refused to present the full findings of the steering council. Obviously the government fears publishing the entire opinion." The state of Thuringia hosts the 190,000-unit-capacity Eisenach plant which currently manufactures the B-segment Corsa. The federal Economics Minister Rainer Bruederle has only said that the body of experts had been "very critical" of granting aid—a position he strongly supports. High-ranking officials from the German rescue fund, including Chancellor Angela Merkel's chief economic advisor Jens Weidman, are expected to recommend on Wednesday whether or not to risk taxpayers' money to backstop private-sector loans for Opel. "In the end, I think Merkel's solution will be to seek a compromise," said one union official, who believes the Chancellor will remain true to her middle-of-the road strategy by extending some aid. Opel works council leader Klaus Franz said, "Governments in Spain, Great Britain, Austria, Hungary and Poland have agreed to 800 million euros... If Germany doesn't come through with loan guarantees, the other European countries will withdraw their support."
GM is still hoping that the German government will supply the largest contribution of all the national governments which play host to Opel/Vauxhall plants. The U.K. government has already pledged £360 million in loan guarantees for the Luton and Ellesmere Port Vauxhall plants in the United Kingdom (see United Kingdom - United States - Russia: 29 December 2009: Sberbank Calls for Compensation on Failed Opel Deal; U.K. Reportedly Reaches GM Support Deal). However, it should be noted that this support may be under review following the U.K. general election, with the new coalition government reviewing all spending commitments by the previous Labour government. However, despite the even greater strains currently being felt by the Spanish economy, that country's government has just committed 300 million euro to support the restructuring process with regards to the company's Zaragoza plant. This money will be provided by the Spanish federal government and the Aragon regional government, which plays host to Zaragoza. With the German government playing host to around of Opel/Vauxhall's 48,000 workers throughout Europe GM is looking for a proportional amount of cash in the form of loan guarantees to support the combined 3.7-billion-euro restructuring of Opel/Vauxhall, a large portion of which will be taken up with redundancy payments for the 8,000 members of staff that Opel/Vauxhall is looking to shed across its European operations. GM raised its own contribution earlier this year from an initial figure of 600 million euro, to 1.9 billion euro.
Outlook and Implications
The process of the German government granting loan guarantees to the restructuring process for Opel/Vauxhall has been ongoing for more than a year now, following the initial decision by GM to sell its main European unit, and choosing the tier-one component supplier Magna as the preferred bidder for the company. The German government heavily backed this bid and seemed pleased that GM was relinquishing control over Opel, offering Magna up to 4.5 billion euro in loan guarantees to support its own financial restructuring plan for Opel/Vauxhall (see Germany: 20 August 2009: Germany Offers Greater State Support if GM Picks Magna; to Bankroll Other Stakeholder Nations). However, the newly re-elected German government was left embarrassed and angry at GM's decision to reverse its decision to sell Opel/Vauxhall, partly because it had backed the Magna bid so publicly during the general election (see Germany - United States: 4 November 2009: GM Board Decides Not to Sell Opel). It has never been properly explained why the EU accepted the fact that the German government seemed prepared to offer Magna carte blanche in terms of loan guarantees while procrastinating hugely over offering GM just a quarter of what was originally on offer to Magna, with laws on the free movement of capital within the EU preventing national governments from favouring one bidder or owner of a company over another. In fairness the German government has been extremely busy with getting its contribution to the European bailout of distressed economies, such as Greece, passed by its parliament. But this still does not explain the procrastination that has been a characteristic of the process of discussing loan/guarantees for Opel/Vauxhall. A point that has been regularly made by the aforementioned Klaus Franz is that the loan guarantees are juts that, they are not a subsidy or a grant, but just act as a guarantor for a company's ongoing financial operations. There is every chance that GM would not have to draw in any German public money, so on this basis it seems strange that factions within the German government are so resistant to offering assistance to Opel/Vauxhall in the form of loan guarantees. If the German government has been selective in presenting information on GM's case for Opel/Vauxhall loan guarantees this is likely to further undermine its standing with Opel's unions and workers' councils.