ANALYSIS: Deal on GM's Opel to miss Merkel's political deadline

By Andrew McCathie Aug 26, 2009, 13:20 GMT

   Berlin - German Chancellor Angela Merkel's conservative political bloc is facing a tough round of state elections this weekend against the backdrop of a growing uncertainty about the future of the giant US carmaker General Motors Co's Opel European offshoot.

   Another meeting between German government officials and top GM executives is expected on Friday after talks between Berlin and the carmaker broke up on Tuesday without reaching a deal on the future ownership of the so-called New Opel.

   'We are continuing to negotiate,' said German Economics Minister Karl-Theodor zu Guttenberg Tuesday. 'Substance comes before time pressure,' he said. About a half of Opel's 50,000 European-strong workforce is located in Germany.   

   But tensions between Berlin and General Motors' have been mounting in recent days with the GM board delaying reaching a decision on Opel last Friday and signs now emerging that it could be favouring an alternative solution to the one backed by Merkel's government.

   The imbroglio over Opel comes at a critical time for Merkel's ruling coalition as it faces up to national elections set down for September 27 with leading German political figures having attempted in recent weeks to pressure GM into making a swift decision. Instead, however, GM seems to have been playing for time.

As a result, hopes are fading in Berlin that Merkel's government will be able to secure an agreement with GM on Opel's future ownership and jobs at its German factories before the election.

   The risk for Merkel is that her Christian Democrat-led (CDU) bloc could now face the buildup to the polls amid growing fears about jobs at Opel as well as frictions with the US over the now protracted negotiations with GM.     

   Moreover, the German Opel operations are based in four states, including Thuringia, where a government led by top Merkel ally Premier Dieter Althaus is facing a tough election battle on Sunday.

   Despite the big lead that Merkel currently enjoys in national polls, voter surveys show a swing against Althaus which means the CDU could lose in its absolute majority in Thuringia, where Opel's state-of-the art factory is based in the historic town of Eisenach.       

   At the same time, North Rhine Westphalia, where another Opel factory is located in the town of Bochum, is facing local elections on Sunday with Merkel's CDU already alarmed about receiving a wrap over the knuckles from voters in Germany's biggest state.   

   Another GM board meeting on Opel, which includes the Opel and Vauxhall car brands is not due until next month.

   The offer led by Austrian-Canadian auto parts group Magna International was an 'excellent starting point' for securing Opel's future, Merkel declared last month.

   But the problem for Merkel is that the government may have backed itself into a corner in coming out strongly behind Magna with GM now signalling it would like Berlin to consider the merits of an alternative offer.

   This is the bid drawn up by the Brussels-based private equity group RHJ International. Under its orginal Opel restructuring proposal, GM plans to retain a sizeable minority stake in its European subsidiary.

   Furthermore, in the documents setting out its Opel bid, RHJ also envisages the possibility that GM could eventually buy it out as part of an exit strategy should its offer succeed.

   But with Opel's bidding was still open, Italy's daily La Repubblica reported that the Italian carmaker Fiat was also now considering returning to the battle for Opel.

   Apart from providing a bridging loan of 1.5 billion euros (2.1 billion dollars) to help Opel through the negotiations on its new structure, Berlin is also offering state-back guarantees of 4.5 billion euros if Magna is selected by GM to take out a majority stake in its European operations.   

   But a member of GM's negotiating team told dpa: 'Quite honestly, from our position RHJ has presented the best offer, in terms of job cuts and a smaller commitment of tax money.'

   Plunging sales and the global car crisis has forced GM to announce earlier this year plans to restructure its world-wide operations, including hiving off a majority stake in Opel.

   But since then, an improving auto market underpinned by government car-buying incentive schemes have it also appears lead GM to consider as an option retaining control of Opel.

   This in turn has set the alarm bells ringing among German unions.

   'We know GM's plans,' Opel union leader Klaus Franz told the daily Berliner Zeitung. 'They have been clear enough: close in the factories in Antwerp, Bochum and sell the plant in Eisenach.'

   The Magna-led consortium bidding for Opel also includes the state- controlled Russian savings bank Sberbank and Russian carmaker Gaz.

   However, it is understood that throughout the negotiations over Opel GM has been concerned the Russian involvement in the Magna bid.