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The Opel Showdown

The controversial rescue of GM's German subsidiary.

11:00 AM, Jun 9, 2009 • By ULF GARTZKE
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Through its German subsidiary Opel, the troubles of now-bankrupt U.S. carmaker GM have also spilled over into Germany's domestic political arena, turning the question of how to best separate (some would say "liberate") Opel from its rather incompetent American masters into a major campaign theme ahead of the Bundestag elections in September. The transatlantic negotiations about the future of Opel had been going on for several months already, but with GM's May 31st restructuring deadline looming (the car company failed to meet it and subsequently filed for bankruptcy), things were bound to come to a head.

First, the Obama administration dispatched a third-rate Treasury official to a top-level gathering convened at Angela Merkel's chancellery on May 27. With Germany's chancellor, key cabinet ministers, relevant regional governors, as well as the leaders of the two remaining bidders for Opel at the time, Canada's Magna and Italy's Fiat, all present, the meeting was supposed to achieve a major breakthrough about the future of Opel. Unfortunately, it became obvious rather quickly that the Treasury emissary had no real authority to strike a deal on behalf of the Obama administration and GM. Adding insult to injury, the American envoy also suddenly demanded an extra 300 million Euros in cash aid--in addition to the German government's proposed 1.5 billion Euros "bridging loan"--to cover Opel's immediate financial needs without providing any guarantees that the money would not eventually end up in GM's coffers anyway. Confronted with these last-minute U.S. demands, Fiat decided to pull out of the bidding for Opel.

German economics minister Karl-Theodor zu Guttenberg, a 37-year-old rising star in the conservative CSU party with long-standing political ties in Washington, described the all-night talks as "bizarre." Using the knee-jerk negotiating tactics regularly employed by U.S. carmakers when trying to squeeze concessions from their suppliers is not the way to deal with the government of one of America's key allies.

To up the ante after the disappointing outcome of the Opel talks, economics minister zu Guttenberg quickly went on the offensive the following day and reminded the American side that Berlin might well decide to restructure Opel through an "orderly insolvency" rather than a government-backed sale of the company to Magna, thus minimizing any potential bailout risks for German taxpayers. Mr. zu Guttenberg's bold push for an insolvency-based restructuring plan seems to have played a crucial role in making the Americans agree to relinquish majority control of the German carmaker. On the other hand, it is also clear that Berlin's negotiating position was seriously undermined by repeated public announcements made by senior left-wing SPD figures like foreign minister Steinmeier who sternly warned against the dire consequences of an Opel insolvency. Of course, what the SPD failed to mention in its populist campaign rhetoric was the fact that Germany is widely considered to have top-notch insolvency laws designed to preserve rather than destroy economic assets. In that sense, an "orderly insolvency" could have allowed Opel to separate from GM, to restructure, and to start with a clean slate.

In the end, however, economics minister zu Guttenberg was left pretty much isolated as the SPD coalition partner, two CDU governors, and even Chancellor Merkel rejected his idea of a bankruptcy-based restructuring plan for Opel and instead agreed to sell 55-percent of the company to the Canadian-Russian consortium led by Magna. Berlin is backing the Magna deal with a 1.5 billion Euros "bridging loan" plus loan guarantees totaling 4.5 billion Euros. GM will retain a 35-percent stake in the company, with the remaining 10 percent held by Opel's employees. While economic experts and the head of one of Germany's top business associations hailed zu Guttenberg's principled defense of economic conservatism and fiscal prudence, Angela Merkel made it clear that an Opel bankruptcy was "politically absolutely not justifiable".