Fiat pulls out of crucial Berlin talks on Opel takeover (1st Lead)

May 29, 2009, 10:35 GMT

Berlin - Italian carmaker Fiat pulled out of key talks set to take place in Berlin on Friday, leaving rival bidder Magna in the driver's seat to take control of Germany's Opel.

A statement by Fiat released in Turin said it would not attend the afternoon meeting called by Chancellor Angela Merkel with Opel's cash-strapped US parent General Motors and representatives of the US administration.

Fiat and the Canadian-based auto parts manufacturer Magna had been due to take part in the talks, designed to hammer out a plan to secure the future of Opel and GM's European operations in the event of GM going into insolvency in the US.

An earlier marathon round of talks broke up early Thursday without result after GM had unexpectedly announced the need for up to 350 million euros (483 million dollars) in extra financing to keep its European operations afloat.

Explaining Fiat's decision to skip the talks, chief executive Sergio Marchionne said the new demand by GM 'would force Fiat to support Opel financially and leave it open to unnecessary and irrational risks.'

Marchionne left open a return to the negotiating table at a later stage. Magna was holding talks with GM representatives on Friday morning about the new financial demand.

German Economics Minister Karl-Theodor zu Guttenberg has made it clear that, unless the potential investors further improved their bids, a possible Opel insolvency would remain on the table.

A government spokesman said Friday the talks might not begin as planned at 1600 (1400 GMT) unless there are clear commitments from the potential investors and the US.

Between them, the parties need to negotiate over the new shortfall in bridging funds resulting from the revised figures GM presented Wednesday.

Any final decision on Opel's future rests with GM and the US government, but Germany hopes to salvage GM's European operations through a proposed 1.5-billion euros bridging loan, administered by an interim board of trustees.

GM has pledged to transfer Vauxhall and other European GM subsidiaries to the Opel brand, based in Germany but owned by GM in Detroit until a buyer is found.

Bidders also reportedly expect the government to pay more than 5 billion euros to clear Opel of pension and labour compensation claims.

The European Commission warned the German government on Thursday to heed EU law in its attempt to rescue Opel.