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GM to fund Opel comeback ‘alone’

Forget it: Opel/Vauxhall chief executive Nick Reilly says the German government's decision not to help with funding is disappointing.

General Motors withdraws all applications for government loans in Europe

Opel logo17 Jun 2010

GENERAL Motors made a stunning reversal of policy on its European operations this week, announcing it had withdrawn all applications for government loan guarantees that were lodged to secure the future of its Opel and Vauxhall brands.

The shock move comes a week after the German government rejected the American auto giant’s request for €1.1 billion ($A1.6b) in loan guarantees, and after Opel/Vauxhall chief executive Nick Reilly told journalists he would work with state governments in Germany to make up part of the shortfall.

Mr Reilly also said last week that Opel would continue to negotiate with the UK, Austria, Spain and Poland for funding that would form part of the overall €3.7 billion ($A5.3b) GM had identified as necessary for its European operations to return to profitability.

The company had planned to break even in 2011, and to return to profit by 2012.

In a statement released this week, General Motors said the validity and reasons for requesting government loan guarantees had not changed, but “the process has proven to be much more complex and longer than anticipated and the results are still not finalised or certain”.

 center imageLeft: Corsa (top) and Ampera.

“In these circumstances, and given the need to progress the plan quickly, it has been decided to fund the requirements internally,” the company said.

“GM’s recently improved financial strength has also been a catalyst for making this decision.” In the statement, Mr Reilly said he appreciated the support indicated by the UK and Spain in particular, but added “we need to move on”.

“The decision of the German government last week was disappointing and means that the conclusion of these guarantees is again likely to be months away,” he said.

“To be clear, our funding needs have not changed and we were led to believe that loan guarantees made available to other European companies under the EU program to help offset the impact of the global economic crisis, would be equally available to Opel/Vauxhall.

“But, after a very long process defined by governments, this has turned out not to be the case.

“We are grateful for the decision and support of our parent company, which will allow us to move forward with confidence in this very competitive industry. We cannot afford to have uncertain funding plans and new time-consuming complex negotiations at this time when we need to keep investing in new products and technologies.

“With these new products and the impact of restructuring, we expect to return to profitability shortly.” New models in the pipeline include the Chevrolet/Holden Volt-based Ampera plug-in hybrid and an all-new sub-light micro-car that will sit below the Corsa compact hatch in the European product range.

The latter is a model Mr Reilly last week said was continuing according to plan, and would be built in Germany rather than the increasingly important GM Daewoo operations in South Korea.

He said some programs would be delayed as a result of the German government’s decision, but emphasised that key products would not be affected.

Mr Reilly, who in recent years has overseen GM’s operations throughout Asia, including Australia, also warned in the wake of the German rejection that the funding shortfall could threaten other GM operations elsewhere in the world.

“Could GM Company pay for the whole lot? In theory, it’s possible. But then they would have to do something else less in the US or elsewhere,” he said.

“You have to remember they (GM) are operating largely because of US taxpayers’ money, so they have to be very careful about what they spend outside the US in particular. They certainly didn’t expect to have to fund the whole lot, and that’s why we should be looking at all different funding options that are open to us.

“They will be one, but certainly not the only one.” GM’s announcement this week vindicates the funding rejection by the German government, which argued that the car-maker had enough liquidity – about €10 billion, based on a “conservative calculation” – to return Opel back to financial health, even after it had paid back credits from the US and Canadian governments.

As GoAuto reported, Germany’s federal minister of economics and technology Rainer Bruederle said last week that “GM is economically much better off than a year ago”.

“We have to move again in the proper courses of the social market economy, and market competition has to come into play much stronger again,” he said.

“The state economy will be pushed back. The state is not a better entrepreneur.”

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