GM hold talks with Germany on future of its Opel unit

Nov 11, 2009, 14:52 GMT

Berlin - Giant US carmaker General Motors Co launched fresh talks with the German government Wednesday on a restructuring plan for its troubled European offshoot, Opel.

But while GM vice president John Smith met with key officials, the US auto group again came under fire from German political leaders over its handling of Opel's future.

'The ball is now in GM's court and not in Berlin' said German Economics and Technology Minister Rainer Bruederle, who roundly criticised the company over its delay to reach a final decision on Opel.

The talks came a week after GM announced that it was abandoning its plans to sell a majority stake in Opel a consortium comprising Canadian parts manufacturer Magna International, Russian state-owned Sberbank and Russian carmaker Gaz.

Instead, GM has decided to restructure the Opel unit itself with the company set to unveil its proposals for revamping its European unit in the coming weeks.

After strongly backing the sale to the Magna-led consortium, German Chancellor Angela Merkel lashed out at GM Tuesday telling parliament she regretted the carmaker's decision announced last week not to sell its European unit.

'I deeply regret the decision of GM,' Merkel said adding that the carmaker would have to foot most of the bill for Opel's restructuring.

In September the international financial advisory group KPMG told the GM board in a report it would need up to 6.1 billion dollars to retain its European subsidiary.

GM veteran Nick Reilly is to lead the revamp of Opel, which includes operations in Spain, Belgium, Poland as well as Britain's Vauxhall brand.

However, about half of Opel's 50,000-strong workforce is employed at 4 factories in Germany with Berlin having provided a 1.5-billion-euro (2.2-billion-dollar) bridging loan to help the group limp through its current crisis.

GM has already said it wants to pay off the loan to Berlin by the end of November.

But GM is also in talks with Opel's unions about the details of the restructuring plan, which are expected to include slashing about 10,000 jobs across Europe.

'First of all we have to reach an agreement with the trade unions over the restructuring plan,' said GM chief Frederick 'Fritz' Henderson, who has also been holding talks in Germany this week on Opel.

In an interview with German state television Tuesday, Henderson also apologized for the sense of upheaval surrounding Opel and created by GM.

But he rejected suggestions that the Opel might be forced to declare itself insolvent if its employees rejected making any concessions.

'Insolvency is not necessary and not likely' said Henderson.

A senior GM executive said Tuesday that the company hoped to repay 6.7 billion dollars in debt to the US Government by the end of the year.

This would still leave the US Government holding 50 billion dollars in GM stock.

While GM's likely job cuts are in line with Magna's plans for the GM offshoot, both German unions and the nation's political leaders fear that Germany's Opel operations could face bigger job cuts under GM as well as the closure of plants.

Magna had already announced plans to cut Opel workforce in Germany by about 4,000.

A leading Opel union representative, Rainer Einenkel, also suggested Wednesday that the company could boost sales in Russia, Asia and the US.

Plunging car sales resulted in GM launching earlier this year a major makeover of its global operations, including selling off Opel.

But since then, the carmaker has emerged from bankruptcy and a new GM board has been appointed. Also, there are signs the economic crisis has abated for the global car industry and the world economy in general.

Moreover, the shift in the global market to smaller more energy efficient cars adds to the appeal for GM of retaining a controlling stake in Opel and the technology backing up its compact European car models.