Funding Opel

Germany had been willing to lend spurned Opel suitor Magna as much as 4.5 billion euros ($6.7 billion) to buy and restructure the Ruesselsheim-based unit of General Motors. The question is whether now, after very publicly embarrassing Chancellor Angela Merkel and much of the German political establishment, whether General Motors will be able to secure a sizable government loan to restructure Opel itself.

GM needs the money to close factories, pay severance and further shift its design emphasis towards small fuel-efficient cars, says David Bailey, a professor at Coventry Business School, who adds that though GM's finances have turned the corner, the company would will likely need state support to restructure.

"I think they will also go to European governments, including the Germans, asking for financial assistance. They'll be back knocking on doors asking for support," Bailey said. Other likely candidates who will receive a knock on their door include governments in Belgium, Britain and Spain, all of which are home to General Motors factories.

The British government, which had feared dramatic jobs losses at the two British factories that produce Vauxhall vehicles, praised General Motors' decision and indicated Wednesday it may be ready to offer aid. Spanish leaders also indicated their willingness to work with GM and the Belgian province of Flanders, which is home to an Opel factory in Antwerp, has long offered up to 500 million euros to any buyer willing to keep the plant open.

Frustration and anger

German politicians have reacted lividly to GM's decision and demanded that Opel repay the 1.5 billion euro bridge loan it extended to the company when GM entered bankruptcy protection. The new Economy Minister Rainer Bruederle said GM's move was "totally unacceptable."

But GM's decision puts the German government in a bind, says Bailey. The government had received a knuckle-rapping from the European Commission over strings attached to aid for Opel's eventual buyer - conditions which, according to critics, meant only Magna could compete successfully in the bidding process.

"Germany's going to be in a difficult position with the European Commission if it now goes back and says we're not going to fund General Motors' restructuring because, in effect, that says it's undermining state aid rules," Bailey said.

The German government has invested an enormous amount of time and political capital into rescuing the company, which it saw as a key component of German industry that could not be allowed to disappear. Further, the government was facing an election in September and did not want to be seen abandoning blue-collar workers at a time when banks were being bailed out with government funds.

"The German government was fully committed from day one," said CSM Worldwide analyst Mark Fulthorpe.

German funding still likely

Despite the very public anger German politicians expressed about how GM rejected the Magna deal, Stefan Bratzl of the University of Bergisch Gladbach believes both German federal and state governments will soon change their tune despite the possibility that GM will use their money to close one or more production sites in Germany.

"When the dust clears, I'm sure the German government will be willing to offer some credit to GM," Bratzl told Deutsche Welle, saying two to three billion euros could be made available. If combined with aid from other countries with Opel factories, the total sum available to GM could come close to the 4.5 billion euros Germany was prepared to make available to Magna.

"The danger I think here for taxpayers is that GM in effect touts its business around Europe asking for the biggest subsidy package," said Coventry Business School's Bailey, who said that the European Commission would need to step in to prevent a subsidy bidding war.

But auto analyst Bratzl said EU states may have learned their lesson from the very public rebuke Germany received over its initial loan conditions to Magna, which would have heavily favored German industry over other EU members.

"Governments will probably be a bit more cautious about giving money that sets conditions," Bratzl said.

Reporter: Brett Neely
Editor: Sam Edmonds