When General Motors reversed its decision to sell off Opel/Vauxhall to Canada’s Magna, the US carmaker caused significant collateral damage to many governments in Europe. Nowhere was this more the case than in Germany, which had pledged €4.5bn ($6.7bn) in state aid to the prospective buyer of GM’s European operations. Chancellor Angela Merkel, at the end of a successful visit to the US in which she spoke before both houses of Congress, was informed of the decision by newswire. Certainly, this was not the style that one would associate with a world-class company.

It was to be assumed, at least, that GM had conducted a thorough strategic analysis and come up with a plan to allow Opel to stand on its own feet. Yet in the weeks that followed, high-ranking GM executives were to be found lobbying the federal and state governments in Berlin, Wiesbaden and Düsseldorf for state aid.

Such blackmail should be resisted. The German government, the governments of the European Union and the European Commission itself should refrain from getting involved. GM should not even think of asking.

This is even more important in a year when 20 of the EU’s 27 member states have failed to keep their budget deficits within limits set by the Maastricht treaty. It makes no sense to increase national debt to bail out floundering businesses.

Financial aid provided by the Deutschlandfonds package, a €100bn German fund that provides credit guarantees and loans for companies struggling to obtain financing, is also out of the question. This was intended to help companies sucked into the global financial crisis through no fault of their own. Opel’s problems go back much further. In the past 15 years its market share has halved, falling from 17 per cent to 8.4 per cent.

German taxpayers cannot afford to be the paymasters for all of Opel’s European locations, nor is there any reason why they should. They are aware of this. A recent survey by TNS Emnid, the pollster, revealed that two-thirds are opposed to state subsidies for Opel.

Governments in Europe should be clear on one thing: state ownership and long-term subsidies cannot replace management skills and accountability. The fact is that the automobile industry has a problem with overcapacity globally. According to the latest estimate, only 56m new cars will be produced in 2009, with a worldwide capacity of 90m. No taxpayer should be asked to subsidise overcapacity.

GM is reportedly threatening the federal and state governments with sending Opel into insolvency if there is no state aid forthcoming. It seems to expect a state subsidy of up to €4bn, with estimates for the total cost of restructuring now approaching €4bn-€6bn. Berlin is leaning towards refusing GM’s requests. Individual states with larger Opel factories, such as Hesse and North Rhine-Westphalia, may be more receptive.

Going through with this threat would ruin the image of GM in Europe, or what is left of it. The decision to keep Opel in order to send it subsequently into insolvency would be an impossible act to explain. But if GM cannot or will not shoulder the burden on its own, insolvency is probably the best option for restructuring Opel in the long run.

The difficulty, a messy one indeed, is that there is no European insolvency law. However, a procedure exists under the new German insolvency law, similar but not identical to America’s Chapter 11, that would allow Opel to restructure while continuing to produce and sell cars and employ people. A much leaner and stronger Opel could emerge soon.

The unions have already signalled their support for a significant restructuring by co-operating to lower the German Opel workforce by 10,000 from today’s level of 50,000. This offer was negotiated with Magna in exchange for keeping all Opel factories running.

Thus the ground for GM to restructure Opel has been well prepared. It should take up this offer and sweeten it with the promise of giving Opel more independence in its business decisions when it comes to strategy, car design and sales organisation. The one-off financial burden for this necessary restructuring has to remain with GM. Not with German and European taxpayers.

The writer is national chairman of the economic council of Germany’s Christian Democratic party

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