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COMMENT: Opel pins hopes on regions

By Simon Warburton | 10 June 2010

Germany's decision to refuse GM division Opel's request for EUR1.3bn (US$1.6bn) in loan guarantees has not exactly come completely out of the blue, but it is nonetheless a hammer blow to the automaker.

The much-anticipated refusal by Germany to underwrite the loans had been widely speculated on domestically, but it will also have the effect of making Opel's operations in Spain and the UK start to look nervously over their shoulders.

Both countries have agreed - far smaller - loan guarantees to GM's operations although the new government in the UK looks likely to refer its own EUR300m pledge back to the Treasury for further scrutiny as the previous administration's budgetary commitments come under forensic examination.

There is no doubt Opel CEO Nick Reilly and his team - together with parent GM - will have been preparing some contingency plans for the loan outcome but the economics ministry's decision throws a pretty large spanner into the manufacturers' restructuring plans.

It appears the Opel boss engaged in some fairly last-minute lobbying with German chancellor Angela Merkel in a bid to shore up its request and indeed, the economic steering committee's final judgement went to minister Rainer Bruderle after its members tied two-apiece in a final judgement yesterday.

Reilly was also keen to bat away suggestions the German government was somehow punishing GM for its decision last year to abruptly pull out of the Magna deal.

It appeared at that stage, Germany was prepared to offer aid in the region of billions to sweeten the deal but GM's decision to plough on with its European division put paid to that. "Is this [rejection] retribution for GM last year? - I don't think so," said Reilly.

But Reilly is clearly frustrated at the development. Several times at yesterday's press conference following the aid announcement he used the phrase: "I don't understand." It appears Opel supplied exhaustive information to the steering committee and had offered to radically overhaul its European structure, including closing its Antwerp plant, but even this appeared to be insufficient.

Reilly even cited Bruderle himself as noting: "It was not easy and some jobs might be at risk," a theme sure to be taken up with gusto by Germany's powerful auto unions.

So where does Opel go from here? Well, it probably stays in Berlin as the four principal Länder (regional states) are due to meet Merkel later this afternoon.

Reilly is pinning his hopes on the regional governments being more sympathetic than the federal one. And he's crossing his fingers parent GM will be the ultimate underwriter.