It's Official: Germany Rejects Opel Loan Request; New Options to be Explored

It took some time for the decision to arrive, but it's official now. Germany has rejected General Motors' request for loans to help restructure Opel.

After canning a potential deal with parts supplier Magna International back in November, GM has been intent on restructuring its European division and returning it to profitability. A five-year plan announced in February will have Opel cut 8300 jobs, refresh its lineup, close its plant in Antwerp, Belgium, and reduce production capacity by 20 percent -- all of which is expected to help regain profit in 2012.

To help fund Opel's restructuring, GM turned to a number of European governments. Nearly half of Opel's 40,000-plus-strong workforce is based in Germany, which is why GM was asking for assistance from the German government in the form of a $1.3 billion loan.

The decision, announced by Economics Minister Rainer Brüederle, was made because the higher powers couldn't come to a unanimous position on the matter. In addition, Brüederle is convinced GM has adequate liquidity to finance Opel's overhaul. Restructuring costs are forecast to be in the neighborhood of $4.5 billion.

"The first responsibility for Opel very clearly rests with GM," Brüederle said to German public broadcaster ARD television. "GM is able to reorganize itself through its own funds."

GM Opel boss Nick Reilly responded to the official announcement in disappointment.

"I don't really understand the decision," Reilly said.

In spite of losing the bid for state-sourced aid, Germany won't be turning a blind eye to the issue. Chancellor Angela Merkel was opposed to giving Opel state funds but is looking into other potential avenues, including the European Investment Bank. Regional areas in Germany have continued to pledge support, including Thueringia in eastern Germany, where the subcompact Corsa is assembled. Prominent union leader Berthold Huber of IG Metall has defended Opel as well.

"This is not about abusing the German taxpayer as a dairy cow to be milked...You won't be throwing money into bottomless banking towers," said Huber at an Opel rally.

While Germany wasn't eager to help, Spain has pledged 300 million euros ($361.7 million) in assistance from its central government and Aragon regional government. Opel also has the backing of Austria, Poland, and the United Kingdom.

Stay tuned to Automobile Magazine and Automobilemag.com for more news on the Opel situation.

Sources: Automotive News 1, 2, 3, 4 (Subscription required)

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