QOTD: "Guaranteeing Jobs At Opel Would Imperil Jobs In Other Companies In the Industry"

Yesterday, as predicted by TTAC on many occasions, Germany’s Economics Minister Rainer Brüderle denied state aid for Opel. Even before the announcement, his boss Angela Merkel called a pow-wow of the premiers of the Opel states to find out what can and should be done now. The pow-wow will take place today. Yesterday’s statements by Brüderle and his boss are quite telling. Here they are, unedited (German version courtesy of Automobilwoche [sub], translation by yours truly.)

Brüderle’s announcement:

“As the Federal Minister of Economics and Technology, I oppose a federal guarantee for Opel. This decision did not come lightly. I am aware that this is about people and many jobs. For my decision, many aspects of the case were weighed. Amongst those are aspects of the labor market and regional policy, but also operational and economic considerations, and competition policy issues.

As Federal Minister, I am very much committed to the social market economy. The social market economy is about finding the right balance between market and state. After the immense economic programs, of which, incidentally, Opel had benefited in two dimensions – namely, through scrapping incentives and bridge loans – the pendulum must now swing back towards the market.

We must once again move back to an orderly social market economy. Free enterprise and unencumbered market forces must again be emphasized. The state economy must be pushed back. The state is not the better entrepreneur.

For my decision, the following reasons are paramount:

FIRST, I am convinced that General Motors has sufficient financial means. General Motors can manage the restructuring of one of its most important businesses on its own. Conservatively estimated, General Motors has free cash flow of ten billion Euros at its disposal. General Motors is economically much better off than a year ago. The company emerged from the insolvency proceedings as a significantly strengthened company. In the first quarter of this year, the company recorded a profit of almost $ 900 million. An IPO is being prepared. Given the backing by such a strong parent, I am confident that the future of the subsidiary can be secured without state aid. General Motors should quickly restructure Opel and strengthen them for the future.

SECOND Opel is not able to find a bank that is willing to take on the risk. It is common that banks assume at least ten percent of the risk. Obviously, no bank is ready to do that. According to my interpretation, this signals that there are serious doubts about the viability of the project, and that banks assume that repayment of the loan is unlikely.

THIRD I considered in my decision that the automotive market suffers from considerable overcapacity. Government support for a company would lead to serious market distortions. Guaranteeing jobs at Opel would imperil jobs in other companies in the industry. In the past few days, many voices in the industry warned again against the threat of these distortions. As the Economics Minister, I cannot just look at a single company, I must keep the entire automotive industry and its jobs in perspective.

In my decision, I am encouraged by the assessment of the Governing Council. This independent expert panel considers requests in purely economic terms. It found that the criteria of the Deutschlandfond are not being met.

I am confident that Opel has a good future, even with out a state guarantee. The performance of the parent company is beyond question. The parent has to assume its responsibility vis-a-vis the subsidiary, and it must take care of plants and jobs.”

90 minutes later, Brüderle’s boss, German Chancellor Angela Merkel had this to say:

“As for today’s decisions, I have a message to the workers: The last word on the future of Opel, of course, has not been spoken. Tomorrow I will consult with the Prime Ministers whether there are possibilities to help Opel.

I think it is quite obvious that there are differences of opinions within the coalition. This is not new. The non-approval of the application is an expression of these diverging opinions. In my consultation with the Prime Ministers, I will do everything so that the employees who were pushing for the preservation of Opel receive all possible help and support we have at our disposal. “

While there are differences in the coalition, it is highly unlikely that Brüderle denied help after Angela said: “Rainer, I know you don’t like it, but give them the [expletive deleted] money.” This is a political kabuki dance. Brüderle’s FDP is the pro-business party, so they make the pro-business decisions. Merkel’s CDU is a party of the (right leaning) people, and she doesn’t want to appear doing anything rash.

Note that Angela did not promise help to Opel. She promised help for “the employees who were pushing for the preservation of Opel.” German unemployment benefits can be quite generous. If GM keeps the lights on at Opel, the severance packages can make a worker quite comfortable. When Antwerp was closed, the severance package averaged $205K per job.