Opel talks stall on GM financing demand

The future of General Motors European operations hung in the balance on Thursday morning when top-level talks led by the German government ended in failure after the carmaker’s US parent demanded €300m ($414m) in financing.

Berlin blamed GM and the US Treasury for the failed attempt to secure a state-backed bail-out and said Opel, the core of GM’s European operations, would become insolvent if a deal was not struck by Friday night.

Speaking after eight hours of talks through Wednesday night and Thursday morning, Karl-Theodor zu Guttenberg, economics minister, said he was shocked by GM’s last-minute revelation at the beginnings of last night’s talks of €300m in financing needed for Opel and Vauxhall, the British marque.

He said that the talks – which he described as “at times absurd” – had have mainly stalled because the German government had “once again” been confronted with new financing needs.

“I would have liked to see a more serious and conciliatory approach from the American side,” Mr Guttenberg said.

The talks between the Opel bidders, GM, and representatives of the US government had aimed to secure a state-funded €1.5bn temporary lifeline for the carmaker and its transfer to an independent trust to ensure its survival during talks, expected to last into the summer, between GM and the potential buyers of Opel/Vauxhall.

The conflict over the €300m arose over the short-term financing the US Treasury’s autos task force had pledged for GM’s international operations after a likely US bankruptcy filing. However, it emerged on Wednesday night that this money was now off the table, changing the calculation of Opel’s spin-off value.

The sum is debtor-in-possession finance that GM assumed could be ring-fenced for its international operations, but which will no longer be available to its European arm, according to a person close to the Detroit carmaker.

Treasury is thought to have withdrawn the funds because of a prohibition on allocating US taxypayer bailout funds for non-US operations, according to this person.

The €300m would not affect the €1.5bn in bridge-financing total that Opel needed. But the sum would have to be paid immediately after a GM bankruptcy filing.

Roland Koch, premier of the state of Hesse, home to Opel’s main headquarters, said the extra €300m was “the core of what is bothering us... If you finance a bridge without knowing what’s on the other side of the valley, you’re setting yourself up for a big fall.”

“What the Americans are doing here is not acceptable. They completely ignore the situation in Europe and try to push through their own agenda.”

Berlin has ruled out Belgium-based holding RHJ International from the bidding process. This left Italian carmaker Fiat and Canadian auto-parts maker Magna as the two remaining suitors. They will be allowed to take a deeper look into Opel’s books, should a deal about a lifeline for the carmaker be struck this week.

People close to the situation said that Magna had pledged on Wednesday night to cover the immediate financing need if it would get collateral in return. It remained unclear if Fiat has made a similar offer.

Peer Steinbrück, German finance minister, said that both Fiat and Magna would have to do “more homework” before getting a pledge of state guarantees from Berlin. An expression of interest from Beijing Automotive Industry Corp (BAIC), described by Mr Guttenberg as a very rough draft on “two pages”, had arrived too late to be considered.

However, the race for buying Opel and Vauxhall could still widen again to three as BAIC managers and advisors are set to meet the German government next week. People close to the situation said that the Chinese carmaker still had a slim chance to enter the process and comb through the carmaker’s books if the government approved its takeover proposal.

Meanwhile, the two remaining bidders tried to score with further concessions. Frank Stronach, chairman of Magna International, said on Thursday the company had significantly boosted the amount of its own capital it was prepared to offer.

Magna, which has joined forces with Russian carmaker Gaz and Russian lender Sberbank in its bid, initially said it would invest €700m. But the biggest chunk of that money is believed to be a loan and not equity.

The German government had initially aimed to name the bidders today it would support with a pledge of €5bn-€6bn in credit guarantees once the carmaker had separated from GM.

Mr Guttenberg and Mr Steinbrück, said Berlin would not bow to GM's latest request for additional state money and heavily criticised the negotiating style of the US participants.

“We had to conclude that the Treasury could have worked a bit harder at picking its choice of negotiating partner,” Mr Guttenberg said. “We still don't have the guarantees we would need to release the bridge financing today.”

GM, which spoke of “intensive and constructive” talks last night, had hoped by today to have in place a firm commitment from Germany on the loan guarantees and the bridge financing to keep Opel and Vauxhall afloat through negotiations with the outside investors.

GM is counting on the bridge loan as a signal to its suppliers, customers and other stakeholders that its European businesses will keep operating normally after a likely Chapter 11 filing in the US.

The final decision on the sale of Opel and Vauxhall is in GM’s hands, but the German government has a strong clout in the discussions as it would provide for the bulk of the state guarantees. Opel employs more than 25,000 in Germany, around half of GM Europe’s workforce.

Opel's sales have been lifted by Germany's scrapping incentives in recent months, but GM's European arm will face a cash crunch by June or July. GM said it was spinning off lossmaking Opel/Vauxhall , until recently one of its most profitable overseas businesses, in February as part of a restructuring of its global operations.

The likelihood of a bankruptcy filing by Detroit's biggest carmaker rose sharply on Wednesday when GM said it had failed to agree a debt for equity swap with holders of $27bn worth of its bonds.

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