PREVIEW-GM’s recovery undermines Opel’s hopes for state aid

* Arguments for aid running out as GM returns to black

* Merkel “personally embarrassed” by Opel sale collapse

* No political incentives and few risks in case of a veto

By Christiaan Hetzner

FRANKFURT, May 24 (BestGrowthStock) – The turnaround at General
Motors [GM.UL] from bankruptcy to profitability in just 12
months is undermining the efforts of its loss-making German unit
Opel to win state aid, leaving GM to foot the bill.

Almost a year to the day since GM sought protection from
creditors, the steering committee of Germany’s rescue fund will
meet on Tuesday to recommend whether taxpayers should backstop
loans to Opel worth about 1.3 billion euros ($1.6 billion) that
would finance some 8,300 upcoming job cuts.

GM only wants to contribute half of the 3.7 billion euros
Opel requires in total funding, saying that since Opel is a
European carmaker it is a problem for European taxpayers.

But Detroit is not likely to get its way with the business
environment looking brighter and political support waning.

“I see absolutely no reason for a state guarantee. It’s
completely inappropriate, and I don’t expect they will get it,”
said Metzler Bank auto analyst Juergen Pieper.

Already in the doghouse after its clumsy and erratic
handling of Opel last year — first looking to summarily rid
itself of its cash-burning subsidiary only to unilaterally end
months later a Berlin-brokered sale — GM’s sudden good fortune
makes it that much easier for Germany to reject its request.

GM generated $1 billion in free cash alone in the first
quarter, its first three-month period in the black since 2007,
and thanks to the Obama administration it has a liquidity
cushion of nearly $36 billion so there is little evidence to
suggest it cannot fund its fully-owned German unit if need be.

“Aid would only have been justified right in the middle of
the crisis, not any more. Why does the state have to provide
guarantees, why can’t its parent?” asks Helmut Becker, head of
the Institute for Economic Analysis and Communication in Munich.

“If I were a politician I’d feel like I was being conned.
Every three months Opel swears it only has enough money to last
the next six weeks and then it’s finished — and yet still they
are here.”

STATE AID FOR JOB CUTS

Opel first requested the guarantee back at the height of the
financial meltdown, but under far different circumstances,
claiming in November 2008 it could no longer rely on its
cash-starved Detroit parent to remain solvent.

U.S. taxpayers did however recapitalise GM with a $50
billion bailout since then, allowing the company to emerge from
bankruptcy with a sound balance sheet and even pay back an
emergency 1.5 billion euro bridge loan to Germany with interest
late last year so it could regain full control over Opel.

Economies around the world are now expanding again, and
default rates for the riskiest corporate debt plunged 82 percent
in the first quarter, easing access to borrowing. Moody’s
confirmed the improving creditworthiness of carmakers like Opel
when it upgraded the entire auto industry to a “positive”
outlook last Wednesday.

Economist Helmut Becker believes GM only needed to maintain
the illusion that it was in desperate need of aid in order to
extract over 1 billion euros in labour cost cuts.

“If GM was to say it did not need the guarantee any more,
then the unions would say they no longer needed to offer wage
concessions, either,” he explained.

Opel labour leader Klaus Franz struck a deal with management
over wage concessions one working day before the steering
committee meets to exert more pressure on Berlin — not out of
fear of a collapse but to prevent deeper cuts. [ID:nLDE64K0LR]

“State loan guarantees are the best insurance for jobs and
production plants — much better than any contract we could
sign,” he said on Friday, implicitly referring to GM’s decision
to renege on its agreement not to close its Antwerp site.

In Germany, saving Opel has been more politically
controversial than GM’s bailout by the Obama administration.
Berlin refused to take any direct stake and Chancellor Angela
Merkel mistakenly believed her checkbook alone would persuade
Detroit to sell Opel to auto parts supplier Magna (MGa.TO: ).

One banker who has regular dealings with German government
officials said Merkel “felt very much personally embarrassed” by
GM’s last minute refusal and has now washed her hands of Opel.

In a telling move, her government delayed any aid decision
until after May 9 elections in North Rhine-Westphalia, the
country’s most populous state that is also home to Opel’s
beleaguered Bochum plant, in order not to threaten the chances
of her party’s incumbent state premier Juergen Ruettgers.

“I believe we do not need any money at all from the German
government for Opel. If Mrs Merkel does not want to provide any,
than, then we will simply pay for it ourselves – that should
make your chancellor happy,” GM’s straight-talking chairman, Ed
Whitacre, told a German reporter back in November.

With far greater international problems to deal with, Merkel
will likely remind Whitacre of his all-too-telling words.

Investment

($1 = 0.8054 euro)
(Editing by Jon Loades-Carter)

PREVIEW-GM’s recovery undermines Opel’s hopes for state aid