VZCZCXRO2450
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHRL #0272/01 0651627
ZNR UUUUU ZZH
O 061627Z MAR 09
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3498
INFO RUCNFRG/FRG COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 BERLIN 000272 
 
STATE PASS to EEB/TPP/MTAA Brian Nafziger 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ELAB GM
 
SUBJECT: GM Calls for State Funds in Opel Plan: Germans Wary 
 
REF: BERLIN 0214 
 
ENTIRE TEXT IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET 
DISTRIBUTION 
 
¶1.  Summary. This week, GM presented the German government with its 
plan to partially divorce Opel by creating a holding company.  The 
plan would require the German government to provide funding support 
to the new company.  German Economics Minister zu Guttenberg 
promised a German government response in "several weeks," after he 
meets with U.S. government officials and GM in the U.S., but 
indicated to Charge in a March 6 bilateral meeting that he regarded 
the plan as "not too helpful."  The Grand Coalition is in a bind. 
It hopes to avoid layoffs and plant closings in an election year by 
extending loan guarantees, but is unwilling to provide the required 
direct capital investment.  It is also acutely aware of the risk 
that any aid it provides to Opel will be seen as a precedent 
encouraging others to line up.  To put off a painful decision, the 
government may pursue a "wait and see" approach in hopes of gaining 
wider European support and to gauge U.S. government plans for GM. 
Econ Minister zu Guttenberg travels to the U.S. March 15-17 and 
expects to raise the Opel issue with top U.S. officials.  End 
Summary. 
 
GM Aims to Partially Separate Opel 
---------------------------------- 
 
¶2.  On March 2, General Motors Europe Management presented its 
restructuring plan to Economics Minister Karl-Theodor zu Guttenberg. 
 It calls for the creation of a holding company for Opel and British 
subsidiary Vauxhall.  GM would retain a majority stake, with outside 
investors encouraged to buy in.  The plan asks for 3.3 billion euros 
($4.2 billion) in state aid for Opel.  If granted in the form of a 
state investment, the German government would be a minority 
stakeholder until another buyer could be found. (Note: Such a move 
would not be unprecedented, as the Lower Saxony government already 
holds a minority stake in Volkswagen.)  In creating a holding 
company, GM would reassure the German government, which wants to 
ensure that potential investors' funds stay within the new entity 
and do not flow back to the troubled mother concern in the U.S. 
 
¶3.  GM stopped short of full independence for Opel, as technology, 
platforms and development are too deeply entwined between the two 
producers.  Industry experts also consider Opel, with a market share 
of 7.9% in Western Europe, too small to survive on its own.  The 
plan may be fatally flawed, as there are few cash-rich entities 
willing to buy in, and the German government remains reticent to 
invest.  Leading German carmaker Daimler has said it has no 
interest, although Opel employees and dealers have indicated a 
willingness to buy up shares.  GM has also offered to contribute 3 
billion euros ($3.8 billion) in non-cash items, such as patents. 
 
¶4.  Fully aware that without state help, Opel and GM face bankruptcy 
in the coming months, GM Europe Chief Carl-Peter Forster increased 
the pressure on March 4.  Pointing out that GM needed to reduce its 
German operations as part of its European restructuring plans, 
Forster noted publicly that Opel would have to lay off more than 
3,500 of its 26,000 workers and reduce capacity by 30%, as it has 
three too many plants in Europe.   (Note: in a meeting with EMIN, 
TABD Vice Chairman Juergen Thumann speculated that lay offs could be 
as high as 7,000.)  Forster held out hope that the proposed 3.3 
billion Euro" interim aid" for the German government could be 
reduced if other countries with an Opel presence (Spain, Great 
Britain and Belgium) also take part.  Regarding other EU countries, 
Guttenberg told Charge that there was an information exchange, but 
"a two-way flow" needed to improve. 
 
German Government Resistant to Buying in 
---------------------------------------- 
 
¶5.  With Opel facing bankruptcy in the coming months, the clock is 
ticking.  Zu Guttenberg said it could take several weeks for his 
government to respond to GM's plan, during which time he will meet 
with U.S. government counterparts and GM officials.  At a March 3 
meeting of the CDU/CSU governing caucus, Chancellor Merkel said that 
Opel should apply for state aid like any other company.  The caucus 
wants more clarity on Opel's legal separation from GM and its return 
of Opel patents.  Merkel then wants Opel to find a "second 
investor," with GM reduced to a minority share-holder, while the 
state would, at the most, provide loan guarantees. 
 
¶6.  On March 4, Economics Ministry Parliametnary State Secretary 
Dagmar Whrl, CSU, told parliamentarians that the GM offer of 3 
billion Euros might not be binding, while claiming that the concept 
had not been cleared by the GM parent.  She said that the rescue 
plan stood on "feet of clay". Later than evening the governing 
 
BERLIN 00000272  002 OF 002 
 
 
coalition agreed that Opel's rescue plan was not substantive enough 
to permit a conclusive decision, and agreed to intensify talks with 
Opel.  The first meeting with senior Opel management took place on 
March 6 in the Chancellery.  Chancellor Merkel had called GM Europe 
managers personally on March 5 to stress the need for more substance 
in the rescue plan.  Her March 3 visit to Opel in Ruesselsheim 
(planned in September 2008) increases the pressure to have an answer 
by then. 
 
¶7.  In a March 6 meeting with Charge, Econ Minister zu Guttenberg 
confirmed his wariness of the GM plan, stating that the company 
needed to assume greater responsibility.  Zu Guttenberg also 
referred to the on-going dialog between his Ministry and U.S. 
Treasury officials.  Referring to a series of detailed questions 
that the German Economics Ministry provided to Treasury, zu 
Guttenberg said he needed answers before the German government could 
give serious consideration to the GM plan.  Zu Guttenberg confirmed 
that during his March 15-17 Washington visit, he intends to discuss 
the Opel/GM situation with top U.S. officials.  He added that 
Germany must "look at all the alternatives," to from finding 
potential buyers to GM/Opel declarations of "insolvency." 
 
¶8.  North-Rhine Westpahlia (NRW) Minister President Juergen 
Ruettgers and his counterpart in Hesse, Roland Koch (both CDU), have 
called on the government to keep all its options open (see reftel 
for more on Ruettgers's meeting with GM in the U.S.).  Opel directly 
employs 26,000 workers at facilities in Hesse, NRW, Thuringia and 
Rhineland-Palatinate, and numerous supply firms would also be 
adversely affected should Opel fail.  Ruettgers, who faces a state 
election in 2010, cannot weather another plant closing after Nokia 
pulled out in 2008. 
 
¶9.  On February 26, Social Democratic Party lead candidate 
Frank-Walter Steinmeier entered the fray.  Speaking to 15,000 Opel 
employees demonstrating outside Opel headquarters in Ruesselsheim, 
Steinmeier advocated a coordinated European-level solution that 
would also include GM entities in UK, Belgium, Spain, Sweden and 
Poland.  However, Steinmeier did not endorse demonstrators' demand 
that the government directly invest in Opel.  Other SPD leaders, 
Finance Minister Peer Steinbrueck and Party Chair Franz 
Muentefering, have similarly not endorsed state funds for Opel, 
although there is some support in the party for such a measure. 
 
Comment 
------- 
 
¶10.  Comment: Minister zu Guttenberg, who has been in office for 
only a month, already faces a difficult challenge in the auto 
sector.  He must be seen to be helping Opel, but does not want to 
commit German taxpayer money before GM's own future is certain and 
Berlin's action has been coordinated with its European partners.  He 
is also aware that the line of applicants for state aid is growing 
longer and that his decision on Opel will have considerable 
influence on future requests for aid.  Should Opel continue its 
rapid decline, the German government may face the Hobbesian choice 
of either caving in and investing directly in Opel, or, alternately, 
accepting the loss of jobs and the possible closure of plants during 
an election year.  End Comment. 
 
¶11.  This cable was jointly drafted with ConGen Frankfurt and 
coordinated with ConGen Leipzig and ConGen Duesseldorf. 
POWELL