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March 2, 2010

GERMANY/UK: GM bowed to German pressure on Opel – analyst

General Motors' announcement today that it is tripling its funding commitments to the restructuring of its European Opel/Vauxhall unit to EUR1.9bn shows it has bowed to pressure from the German government, an auto analyst said in a research note.

General Motors ‘ announcement today that it is tripling its funding commitments to the restructuring of its European Opel/Vauxhall unit to EUR1.9bn shows it has bowed to pressure from the German government, an auto analyst said in a research note.

“GM has said that the new, larger contribution will be made in the form of increased equity and loans,” IHI Global Insight’s Tim Urquhart wrote. “However, it may not be the most progressive move in terms of building trust with Opel/Vauxhall’s stakeholders such as the German government and the German workers councils who will wonder why GM has suddenly been able to provide this extra funding.

“While it may not immediately help to build trust, GM has now seemingly done all it can to secure the future of a sustainable Opel/Vauxhall company. It is now up to the company’s other stakeholders, namely the workers and the various governments that host plants, to step up and agree a meaningful contribution.”

GM had previously pledged EUR600m. Under its viability plan, Opel/Vauxhall had estimated funding requirements of EUR3.3bn. However, an additional EUR415m had been requested by the respective European governments to offset the potential impact of adverse market developments, GM said in a statementr.

“In a vote of confidence in Opel/Vauxhall’s long-term business strength, GM will now contribute more than 50% of the overall funding requirements,” the automaker added. “As a result, the requested total of loan guarantees from European governments will decline from EUR2.7bn to under EUR2bn.

“This commitment by GM removes any potential liquidity risks during the restructuring this year.”

“GM’s EIR1.9bn commitment is the right course of action for Opel/Vauxhall and should clearly signal our determination to fix our business,” said Opel/Vauxhall chairman Nick Reilly. “Our call for the additional funding was approved by GM’s senior management and supported by the GM board of directors. Meanwhile, we have shared this decision with the European Commission as well as the national and state governments involved. We hope that our strong commitment will be well received as a major milestone in our ongoing discussions about government guarantees to cover the remaining gap.”

“We greatly value the much increased support from GM, particularly given the high-priority demands on their liquidity, not least the restructuring of GM’s North American operations and coping with a continuously weak market in North America”, Reilly added.

“It is of vital importance for GM to demonstrate our commitment for our European operations,” said Ed Whitacre, GM Chairman and CEO. “Beyond the purely financial aspects, we see this as a major step towards instilling renewed trust and confidence into Opel/Vauxhall’s customers, employees, business partners, unions, dealers and European governments.”

GM’s plan for Opel envisages 8,300 job cuts factories across Europe, shuttering the Antwerp plant, 20% capacity cuts and a return to profit by 2012.

On Monday, Opel labour chief Klaus Franz demanded that GM invest at least EUR1bn to restructure Opel and improve its chances for getting state aid. GM had originally asked European countries with Opel plants – including Germany, Belgium, Britain, Austria, Poland and Spain – to contribute EUR2.7 bn of aid.

General Motors ‘ pledge to triple financing for Opel shows its has means at its disposal to help its European unit, a spokeswoman for German economy minister Rainer Bruederle quoted him as saying on Tuesday.

“That shows GM has means,” the spokeswoman quoted Bruederle as saying, adding that Germany was still considering GM’s application for state aid for Opel.

Global Insight’s Urquhart said that, while Bruederle and the German government appear to have been vindicated in playing hardball with GM over the comparatively small amount of backing that GM was originally contributing, it is now equally important that the German government and the other European governments that host Opel/Vauxhall plants get around the table with their respective workers’ representatives and thrash out an agreement on a final restructuring plan.

“While this needs to happen as soon as possible, it remains to be seen whether the German workers’ council and other European union groups will take a more pragmatic stance in their negotiations with GM’s management,” he wrote.

“GM has certainly stepped up to the plate in providing extra funding, with Germany and the other European governments only being asked to contribute EUR1.4bn of the total restructuring bill, less than the amount Germany was being asked to provide on its own.

“However, the very act of contributing more money may even further undermine trust between the stakeholders and not build it. The German government and the various union groups will no doubt be asking why GM has suddenly been able to triple its commitment to the restructuring plan, and why this money was not available from the start of the process.”

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