By on November 16, 2008

This weekend’s G20 meeting was pretty much a non-event. A Bretton Wood it was not.  While German Chancellor Angela Merkel and her Finance Minister Peer Steinbrueck were still in DC, an urgent e-mail was sent to Carl-Peter Foster, chief of GM Europe. Also on the To: line: Hans Demant, head of GM’s German Opel subsidiary. They were ordered to get their glutei maximi to Berlin. They were furthermore told to bring Opel’s workers council chief Klaus Franz along. Bloomberg reports that the sit down’s set for the Kanzleramt, right after mammy comes home and emerges from her Airbus 310 (named “Konrad Adenauer,” after Germany’s first chancellor, who’s busy rotating in his grave).

Anywhere between €1b and €2b in governmental loan guarantees will be on the table. Before any money is doled out, Foster and Demant will be in for a serious upbraiding. Economy Minister Glos already dropped the ominous remark. “When tax money is on the line to save international auto makers, there will be demands and conditions.” After Angela is through with Carl-Peter, Hans, and Klaus, and class is dismissed for some serious homework, Merkel’s Finance Minister Steinbrueck and Economy Minister Glos will hammer-out details with the federal states the next day. Berlin will underwrite €1b, the states underwrite another €1b. Or somesuch. And then …

And then, there is the A-word. Not “A ” as in Arschloch (although that word may have come up in discussions). That’s “A” as in assets. Only fools with think the Germans will give without taking.

Germany’s mass publication Bild am Sonntag says that GM will have to fork over €1b worth of assets, which Opel could use as guarantees for €1b of loans. Again, bet your sweet assets that when the loan guarantees go to €2b, concomitant GM-owned assets will have to be put in hock. Far from saying “we told you so.” But didn’t we tell you so?

Also assume that Opel’s books will receive an intensive colonoscopy. Anything GM may remotely owe Opel will come up. Assuming GM’s unwillingness (or inability) to pay, the debts will go to the appropriate collection agencies.

At first glance, GM owing Opel €2b and Germany getting ready to pony-up €2b in guarantees is way above coincidental. Then there is the always sticky matter of “unzulässige Gewinnentnahme,” or siphoning-off profits by a parent before they are properly-declared as profits and taxed to the gills. A lowly tax auditor can create havoc at the stroke of his red pen. Rest assured, with the books open to scrutiny, something along these lines may come up. Unless given to a good cause, such as supporting Germany’s farmers, or dotting the landscape with windmills, Germany rarely gives out free lunches. Especially not to Ausländer (foreigners.)

Like BS has a tendency towards walking, money has an inkling towards talking. Things will be different once Opel hangs on the financial drip, shoved up its vein by the German government, and their states that have Opel plants and therefore a political interest (as in “jobs, jobs, jobs”, also as in “taxes, taxes, taxes”) in keeping Opel operative.

As Opel’s dependency on the Government-administered money-methadone grows, GM’s adopted daughter may slowly be brought back to her German parents. Or rather be given to a dark knight who may already be lurking in the hedges.

As the B&B rightly opined, the German government(s) have no interest in running Opel. They have a big interest in keeping Opel alive and its profits back in Germany. The usually well informed German newspaper Welt says today, loan guarantees may not be the only topic discussed with Frau Merkel: “Government support, or a disentanglement of GM’s European activities from the parent will be on the table.” Wowie: “Disentanglement.” And not just Opel. “GM’s European activities.”

In related news,  Opel’s captive financing arm GMAC now finally received the memo from back home, outlining the sortof-bank’s dire straits. GMAC Germany finally expressed interest in Germany’s government money as well, Autohaus reports. That money, earmarked for banks, is there for the taking.

In a departure from reality, all too common at GM, GMAC Germany had said last Monday that there’s no need, we have a rich aunt in America. TTAC receives hundreds of hits per day from a network called “General Motors Corporation,” and at least one of them must have picked up the phone and yelled in the direction of Rüsselsheim:”WTF are you doing? It’s free money! Get as much as you can!” It will be most welcome.

As per November 1, GMAC Europe already stopped loaning money for cars to customers in the Czech Republic,Finland, Greece, Norway, Portugal, Slovakia, and Spain. “We won’t stop lending in Germany,” said a speakstress in Rüsselheim. Of course not, no money to customers, no money from Berlin. And then they are Weissbrot. Or make that toast.

PS: Just in case you are wondering where Angela Merkel’s automotive heart lies, on the job, she’s being chauffeured in either a Mercedes S Class, a 7-Series Beemer or an Audi A8 (all Germans are equal under the law).  At home, she drives a Golf.

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21 Comments on “Editorial: Bailout Watch, German Edition, Vier: Merkel To Opel: “You Wait Until Mommy Comes Home!”...”


  • avatar
    tom

    Maybe this will mark the return of the “Deutschland AG”, or “Germany inc.”

    On its own, Opel would probably be too small a player to survive and if they stay with GM, death will be certain.

    So I could see Merkel and her staff trying to convince Daimler and/or BMW to step in…something like “You want cheap credit as well? Then go buy Opel and we’ll give you all the loan guarantees you’ll ever need.”

    Also, I could see the German banks returning to the old ways after the credit crunch. They used to have stakes everywhere within the German industry. It was a conservative way of investing and didn’t yield as much profit as the credit market, but that doesn’t appear to be true anymore. If the banks believe that the German auto industry can make it out of this recession, then now would be the time to invest in Daimler, BMW or possibly Opel?

    It could be an option for big players like Deutsche Bank, but the Federal State banks could also play an important role in there…I sure am interested to see how this will all wind up…

  • avatar

    Looks that way, Tom.

    Especially true about the banks. I bet they are harping back to the good old days when they had stakes everywhere, along with the board seats that come with it, and along with insight unavailable to the common man. As you said, not highly profitable, but safe. Let’s not forget, banks are also market makers in Germany.

    As a banker friend quipped to me back when: “Insider trading? How am I supposed to make money if I don’t know what I’m doing?”

  • avatar

    If GM had filed for bankruptcy back in ’05 (or sooner), it could have hived-off its European, GLAAM and Chinese ops and protected them from the mother ship’s dirt nap.

    (In fact, TTAC recommended this strategy at the time.)

    Like Delphi, GM over there could have had a vital– or at least viable– worldwide presence, even as NA did what it had to do to stay alive– or not.

    Wagoner’s decision to stay the course will now be felt globally.

  • avatar
    Ingvar

    And how isn’t that 2 billion-debacle published in the news? To me, it seems pretty simple. GM can’t afford to pay what they owe, so now, the German government has to step in and pay GM:s debts, with a possible claim in GM:s assets as a consequence. Why doesn’t the media report on this? It looks pretty grave for GM.

  • avatar

    The mainstream press doesn’t have a line to the driver of a 7series Beemer, employed by one Premier, who knows another Premier, who’s heard it from …. Honestly, the 2 billion owed are now all over the German Sunday press.

  • avatar
    tom

    Also, according to todays Frankfurter Allgemeine Sonntagszeitung, Ford Germany is now also begging Angela Merkel for a bail-out…good for her that Chrysler doesn’t have a presence in Germany…

  • avatar
    tom

    Okay, thinking about it, I could see the following scenario happening:

    – Daimler buys Opel
    – The banks supply the money and in return, they get a big chunk of Daimler shares
    – The German government won’t bail out anyone but they’ll give incentives to new car buyers

    Ok, and here’s why that could happen:

    -The German government is very reluctant to bail out Opel, yet they don’t want to see them die for obvious reasons.
    – Daimler has long been looking for a partner in order to develop small, fuel efficient cars. Opel is perfect for that because they have the know how and the line-up to provide Daimler with just that.
    – The banks could go back to the good old days of conservative investment and take a peak into Daimler’s books every now and then.
    – With the banks in play, Daimler would also be secured from a hostile takeover, something they’ve been afraid ever since the Deutsche Bank left them.
    – It would also help Daimler to lower their emissions numbers immediately, by adding Opel’s average CO2 emissions to the mix.
    – GM could generate some quick cash that would get them going until Obama takes his office and bails them out.

    Having said why it could happen, here’s why it probably won’t happen:

    – GM and Opel are tightly interweaved, so a divorce might turn out to be difficult
    – GM might not want to sell Opel as it’s their only brand that’s actually making money (although that didn’t stop them from selling GMAC), also Opel is important when it comes to providing technology.
    – Daimler might not want to get into a new adventure after they burnt their fingers with Chrysler, and this deal is potentially risky in a shrinking market.
    – The banks are still concerned with the credit crisis and with themselves and might not want to get involved in such a deal.
    – It would have to happen rather quickly, which is very difficult with a transaction such as this.

  • avatar

    @tom: You are seeing this too much through a Daimler view …. I have no idea how this will shake out. Who would have thought Porsche buys 75% of VW? All I know is:

    – The government(s) don’t want Opel to shut down
    – They don’t want the money to vanish in the black hole in Detroit
    – Wer zahlt, schafft an – Those who pay, have the say.

  • avatar
    tom

    @Bertel:

    Daimler and VW actually wanted to form a Renault/Nissan like partnership before Porsche sneaked in…some say that Piech gave Porsche the hint that they had to move quickly before Daimler gets a piece of VW.

    That’s why I think that they might be interested in Opel instead.

  • avatar

    New pre-meeting warnings:

    Steinbrück: “We cannot have crisis free-loaders. I can only warn managers against thinking they can take advantage of the current situation to get something from the government they would not have otherwise received. Those who are responsible for their own problems shouldn’t come to the state for cures. This simply won’t work with the German government.”

    Glos: “I see the danger that one sector after another will come to us. We can’t suddenly come up with packages for a whole range of industries.”

  • avatar

    Daimler may have had this wet dream.

    VW would rather merge with the devil than with Daimler.

    Piech=Porsche.

  • avatar
    JeremyR

    I wonder if I’ll still be able to buy a Saturn Astra when this is all over. (Yes, I’d buy one from a bankrupt automaker; not so much from a bailed-out one.)

  • avatar
    tom

    @Bertel:

    Read this and you’ll be surprised:
    http://www.faz.net/s/RubD16E1F55D21144C4AE3F9DDF52B6E1D9/Doc~EDF40ADEA6F214052B836A82138FC08B2~ATpl~Ecommon~Scontent.html

    VW had already bought 4.8% of Daimler when Porsche announced their move…

  • avatar

    @tom: Not surprised. Finally, I know why Pischetsrieder really got fired. Pischetsrieder cavorted with the enemy.

    If anybody assumes that Piech had no insider knowledge of everything, he’s believing in the tooth fairy. Piech is a hands-on detail guy. Keeping a partnership with Daimler a secret from Piech is an automatic death sentence.

  • avatar
    TireGuy

    Handelsblatt.com has an interesting interview with Roland Koch, prime minister of Hessia. Koch makes clear that the state should support Opel, since this is not a crisis from own faults, but coming over from GM. He does not want that this is seen as a general support of the German automotive industry, although he also stated that Germany must avoid that a short downturn of the global markets would destroy the market leading German auto industry overall.

    Hessia will have to pass a law for the guarantee by Tuesday since the parliament will be dissolved on Wednesday due to a deadlock in parliament, for new elections. So we will know details by then.

    An interesting detail: Koch made clear Germany does not want that Opel transfers funds to GM prior to a CH11 filing. To secure the claim of the government, he proposed that GM should transfer its shareholding in Adam Opel GmbH. As the state would not want to end up for a longer time with a majority shareholding in Opel, the question comes who would buy it.

    BMW and Daimler are out of question, after the Rover and Chrysler desaster. VW would not be interested, and from antitrust view probably not allowed. That would perhaps leave state funds or car manufacturers from China or India. I have no idea where this will really go.

  • avatar
    FromBrazil

    Well, well. Ain’t the Germans all riled up. Seems to me that Opel refusing anything to GM is against like…don’t they BELONG to GM? By what we’ve read here our dear German friends do not think so. Ain’t that a sham? Keep furrin’ alliances as long as it suits YOU, and when it doesn’t say something like JOBS and German engineering world supremacy (cough*cough*cough) an just take it back.

    Hoping GM do Brasil pulls off the same, if Germany can, certainly it’s time for one of the BRIC to show their COJONES.

  • avatar
    TireGuy

    FromBrazil :
    November 16th, 2008 at 7:09 pm

    Well, well. Ain’t the Germans all riled up. Seems to me that Opel refusing anything to GM is against like…don’t they BELONG to GM? By what we’ve read here our dear German friends do not think so.

    Sorry, but you got it wrong.
    All groups in the world have to adhere to certain intragroup pricing, based upon arms-lenghts principle. Groups are organized in separate companies – and they take a shield from this. Therefore, you cannot simply plunder a subsidiary at your will, even if you direct the companies business. Also, bankruptcy laws in every country forbids that a company transfers money without getting anything in return. The directors of Opel may currently be in a position that they need to stop the bleeding by ensuring that GM pays its bills before any new shipments or services are rendered to GM.

    Any way: the request for help from the German government is coming from Opel itself. If they want assistance, they must make sure money does not simply go to GM. If they do not like this prerequisite, there is no reason whatsoever to give Opel even one cent. Let them go under.

  • avatar
    FromBrazil

    Hello TIREGUY

    I think what you say is true. In theory at least and by law as well. But it’s not what’s experienced by my co-nationals working in multinationals.

    Case in point, Gm itsef. It’s doing great down here, profitable. And gets much of their technology from you guys in Germany (ain’t enough to faze me though, have they no notion of how to give a small car space? And drivability? And fun? I stray here). But at this very moment you can be sure its being fine-combed over for any possible cent. That WILL go to NA. Heck! They were profitable but the will not get their promised bonus! “cause the mothership is hurtin’.

    Well, it’s ’cause there’s a big difference between Germany and Brazil. We don’t give ourselves our self respect yet. But we will soon. Then it’ll be funny to see where in hell co. like Fiat will get money to stay afloat.

  • avatar
    tom

    The thing is, I don’t really know how Chapter 11 works in the US. In Germany, there is no such thing.

    If there is a way for GM to survive, then I think it would probably be best for Opel to remain in the GM family, but it would definitely need government help should GM file for Chapter 11, as GM would not be able to pay its dues. However, I just don’t see GM surviving in its current form. In that case, Opel needs a new corporate mother as it is too small to survive on its own. And you only have to look around: There are hardly any real options.

    If there’s one thing I don’t want to see, then it’s the Chinese buying Opel. They would surely let Opel die and then transfer the technology to China. That’s what they always do.

    And that pretty much only leaves Daimler and BMW. Everyone else is either in no position to buy Opel or already has a strong presence in Europe and is directly competing with Opel.

  • avatar

    @Tom:
    Chapter 11 = Vergleich
    Chapter 7 = Bankrott

  • avatar
    TireGuy

    Bertel Schmitt :
    November 17th, 2008 at 10:09 am

    @Tom:
    Chapter 11 = Vergleich
    Chapter 7 = Bankrott

    Hi Bertel,

    it seems to me that you have been too long away from Germany. Formerly Germany knew the term Konkurs for Chapter 7 type filings and Vergleich for Chapter 11 type filings, althouth that never really happened. Since a few years the respective laws have been replaced by the Involvenzordnung, which knows only the term Insolvenc (insolvency). One main reason of the new law was to allow a Chapter 11 type proceeding. This is actually quite rare, but just this year we have seen retailers filing and remaining as debtor in possession.

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