By on June 10, 2010

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.

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13 Comments on “QOTD: “Guaranteeing Jobs At Opel Would Imperil Jobs In Other Companies In the Industry”...”

  • avatar

    Ok, so jumping ahead, is GM able to give the money needed to Opel under its current circumstances?

    If not, what becomes of these guys since they seem to be spreading the platforms they developed into the US and China and more – they seem pretty necessary for GM global product development operations.

    As a side opinion – GM missed a golden with Opel from a product development opportunity that Ford took advantage of with Mazda and Volvo; study the hell out of them in small car and safety tech and then dump them.

    • 0 avatar

      The IP of that technology is in GM’s hands as reported here. I think GM has enough engineering resources worldwide (USA, Australia, Brazil, Korea, China) to evolve what they currently have and develop new platforms in the future.

      The thing is, that Opel going kaput would leave a hole in the EU market that Chevrolet won’t be able to fill with its Daewoo sourced products. It would also remove a lot of engineering capability from GM, which isn’t good.

      In the end, the convenience or not of keeping Opel may be tied with who in the end is more probable to win during the IPO. I read the pdf file referenced here some time ago and don’t find some of the hypothesis that crazy.

      Sadly, Idon’t know what’s going on in Mr Withacre or Mr Reilly heads, so I don’t know for sure what they’re thinking.

      I think Ford relations with Mazda and Volvo were more collaborative than what you suggested, and that both the Japanese and Swedish got a lot of benefit from that.

      I for one, don’t think that selling their stake in Mazda was a good move.

    • 0 avatar

      Ford basically saved Mazda from extinction in the 1990s – at one point it was run by a Ford guy, (either American or British).

      They probably would have gone belly-up otherwise, as they had far too many models and platforms in the early 1990s, and the Japanese recession hit them very hard.

      The engineering-led company was cash rich in the late 1980s, which bought us great cars like the RX7 and the Miata, but also saddled the company with too many weird / niche models such as the ‘bubble’ 121, Mx3, Xedos saloons eic

      I suspect they will get back together in some sort of financial/legal link if Ford’s finances continue to improve.

  • avatar

    The writing is on the wall then: no aid for Opel.

  • avatar
    Tricky Dicky

    Thanks for the translation Bertel. Sounds like a well-considered response, even if I can see a tension between the confidence expressed in the first point, with the doubt communicated in the second point.

    It’s also quite assuring that some politicians are not giving in to populist calls or making knee-jerk reactions. Some decisions are best made after more than, say, one whole days worth of consideration.


  • avatar

    “The state is not the better entrepreneur.”

    Truer words were never spoken.

  • avatar

    If only the Bush and Obama Administrations had followed Brüderle’s advice.

    • 0 avatar

      “If only the Bush and Obama Administrations had followed Brüderle’s advice”

      If it was VW instead of Opel it would be a whole different situation and the aid would flow like niagra. Germany is well aware that GM can afford to restructure Opel on thier own. This comes down to having $70 billion in liabilities removed and $50 billion in cash given, enough is enough. Germany seems to be the one G7 economy that gets that.

    • 0 avatar

      I applaud the Darwinist nature the Germans are taking so far. If you can’t survive in the market — especially after two emergency funds infusions — then kindly get out, and make room for more responsible companies. It’s not the state’s problem.

      Indeed, if only American politicians had spines, too.

  • avatar

    Interesting read, but I think points 1 and 2 conflict a bit.

    Apparently GM can afford to do this on their own, but no bank is willing to lend the money to do the restructuring. That seems a bit odd to me.

    • 0 avatar

      If the German government guaranteed the loans and Opel wasn’t able to repay the banks would have to assume 10% of the loss. That is what the banks are balking at.

  • avatar

    Re:Photo -Apparently Angela has fewer objections to that guy’s ass-grabbing, than she does Dubya’s backrubs.

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