Opel (GM) Withdraws Requests For European Aid

FRANKFURT June 16, 2010; Maria Sheahan writing for Reuters reported that Opel is withdrawing requests for state aid from European governments, it said on Wednesday, abandoning months of talks and leaving parent General Motors to fund the restructuring of its European arm.

The move follows Germany's denial of help with loan guarantees last week.

"The decision of the German government ... was disappointing and means that the conclusion of these guarantees is again likely to be months away," Opel said on Wednesday.

The process of obtaining government loan guarantees was too complex and was taking too long in the face of urgent funding needs, which have not changed, Opel said.

The move comes as a surprise after GM for months insisted it needed European governments to pitch in to restructure the loss-making European brand by slashing 20 percent of capacity and rejuvenating the bulk of the model range through end-2014.

It had originally asked European countries with Opel plants -- including Spain, Britain, Austria, Hungary and Poland -- to contribute 2.7 billion euros of the 3.7 billion euros of aid needed but later promised to cover just over half of the sum.

"We appreciate the support indicated by certain governments, especially the UK and Spain, but we need to move on," said Opel's chief executive, Nick Reilly.

FINANCIAL STRENGTH

Germany's economy minister Rainer Bruederle last week rejected Opel's request for Berlin to backstop 1.1 billion euros ($1.5 billion) of its borrowing.

Bruederle's decision came just after Berlin unveiled an 11.2 billion-euro government savings program, though German Chancellor Angela Merkel said she would do everything she could to help Opel's workforce.

Merkel last year had made talks to save Opel and its 25,000 German jobs a priority in Berlin, brokering a deal to sell the carmaker to Canada's Magna. But then at the last minute GM decided to keep and restructure Opel rather than sell it.

GM's turnaround from bankruptcy to profitability in just 12 months, which helped it hang on to Opel, has undermined the unit's efforts to win state aid.

Excluding funds in escrow, GM had gross cash of $23.3 billion at the end of March compared with $14.2 billion in debt. Its first-quarter funds from operations exceeded capital expenditure by about $1 billion.

Opel said its U.S. parent's improved financial strength was one factor in deciding to withdraw the aid requests.

Editing for Reuters by Greg Mahlich