Germany should call GM’s bluff

August 25, 2009

Recently bankrupted companies seeking billions in taxpayer handouts do not generally have the strongest hand at the negotiating table. Yet General Motors seems determined to drive a hard bargain over the bailout of Opel, its European car arm.

After months of tortured negotiations with the German authorities, GM is now threatening to reverse away from the deal. However, it appears to have few alternatives.

Opel reckons it needs 3.3 billion euros in loan guarantees and other support to see it through to the end of 2011. Germany is ready to stump up the cash, but would like to see Opel sold to Magna,  the Canadian car parts maker, and its Russian backers.

GM is worried that Magna’s bid is too complex and would hand its precious intellectual property to the Russians. It favours a rival bid by RHJ International, the Belgian investment group, which requires less state support but would cost more jobs. With an election looming, however, the RHJ deal looks a non-starter in Berlin.

Now GM is suggesting it might keep Opel and raise the cash elsewhere. Quite where it hopes to find that kind of money is unclear. GM is barred from using U.S. government funds to support its international operations.

It has a presence in Britain through its Vauxhall division, but the British government is less prone to being blackmailed with the prospect of plant closures. Just ask Tata, the Indian group which spent months seeking government support to prop up Jaguar Land Rover before giving up.

GM could raise some cash by flogging or mortgaging its Chinese operations, the largest outside the United States. Even though credit markets have eased since the spring, however, the political complexities of such a sale would surely rival anything thrown up by the Magna proposal.

John Smith, GM’s chief negotiator, was due to meet Germany’s Opel task force in Berlin on Tuesday. Smith, who has been providing regular updates on the negotiations on his blog, has yet to offer his take on GM’s latest stance.

Both sides have every incentive to avoid a bankruptcy of Opel, which employs 55,000 people across Europe. But it is far from clear why Germany should be concerned about saving several billion euros in state support.

If GM really thinks it can raise the funds elsewhere, Berlin should be first to offer its congratulations.

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