VZCZCXRO6504
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHRL #0569/01 1380531
ZNR UUUUU ZZH
O 180531Z MAY 09
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4098
INFO RUCNFRG/FRG COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 BERLIN 000569 
 
STATE PASS to EEB/TPP/MTAA Brian Nafziger 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ELAB GM
 
SUBJECT: Turmoil in the German Auto Industry - Opel's Fate Hangs in 
the Balance 
 
REF: A) BERLIN 0214, B) BERLIN 0272 
 
 
¶1.  (SBU) Summary. GM subsidiary Opel is in danger of going under, 
and is desperately looking for a new investor.  Six potential 
investors have submitted proposals, including Fiat, and Canadian 
parts maker Magna and its Russian partners.  It is difficult to 
envisage Opel's survival without German government financial 
guarantees, which are not yet forthcoming.  Instead, Berlin is 
floating a proposal to set up a "trust" to provide Opel with interim 
funding until an investment deal is sealed.  While the German 
government maintains that it is not providing direct aid to the 
troubled automaker, the loans would come from state banks funded by 
the federal government.  End Summary. 
 
A Fast Moving Target 
-------------------- 
 
¶2.  (U) Opel's fate is the biggest cause for concern in the German 
auto industry.  With Opel's parent firm GM on the verge of 
bankruptcy, the company is looking for an investor to buy up GM 
shares.  On May 4, Fiat CEO Sergio Marchionne presented his plan in 
Berlin.  It would require $6.6 billion to $9.3 billion loan from the 
German government, coupled with a 22 percent reduction in Opel 
capacity.  Marchionne promised to rely on "trimming" rather than 
plant closures to meet his targets. 
 
Darkness at Opel 
---------------- 
 
¶3.  (SBU) Uwe Berlinghoff, Opel's Director of Government Relations, 
reflected the dark mood at the company in a May 8 meeting with 
Econoff.  Noting that "nothing has been decided," Berlinghoff 
discounted press reports of an imminent Fiat takeover, saying 
"nothing is certain and any outcome is months away."  He was 
sceptical about Marchionne's plans, saying they may never see the 
light of day as "there are lots of technical problems to be worked 
out."  Berlinghoff reported that Marchionne had quietly lobbied 
politicians from states where Opel is based, such as Hesse and 
Thuringia.  In Berlinghoff's view, the Fiat take-over bid is a high 
priority for the Italian government, as indicated by the involvement 
of the Italian Ambassador in every meeting. 
 
Fiat Not the Only Show in Town 
------------------------------ 
 
¶4.  (SBU) Berlinghoff pointed out that there are several bidders in 
addition to Fiat.  Canadian parts manufacturer Magna and its Russian 
partner Oleg Deripaska had hoped to purchase "less than 20 percent" 
of Opel.  On May 12, however, sources reported that while Magna 
would continue to bid for a share of below 20 percent, its Russian 
partners, Deripaska's auto manufacturer Gaz and the state bank 
Sberbank, would increase their overall stake to over 30 percent, 
giving the consortium a controlling interest.  Without naming names, 
Berlinghoff said the biggest players are making quiet bids and not 
getting into the press.  Latest press reports say U.S. investor 
Ripplewood has joined the list of bidders. 
 
It's All a Question of Time and Money 
------------------------------------- 
 
¶5.  (SBU) Berlinghoff confirmed that Opel is in poor financial 
shape.  Because of Germany's "wrecking premium" (a 2500 Euro 
incentive to scrap older cars), Opel's German market share increased 
from 7 to 11 percent.  However, its sales in other countries have 
taken a severe pounding.  In Berlinghoff's view, only German 
government funding can avert "catastrophe," should GM go bankrupt at 
the end of May.  Creditors could press for the immediate payment of 
1.3 billion Euros in debts, but the company would not be able to 
obtain commercial loans.  Despite this, Berlinghoff saw no signs 
that Berlin will provide the needed funds now.  He lamented that 
while the U.S. Treasury Department is working closely with GM to 
address its troubles, it has not taken Opel into account.  The 
German Government Task Force is having difficulty in obtaining 
timely decisions from the Treasury because of its focus on GM 
operations in the US and its apparent lack of staff, he had heard. 
Berlinghoff emphasized that time is running out for Opel.  It needs 
months to nail down a buyer and put together a revival plan, but the 
company has no cash and mountains of debt in the interim. 
 
The German Government's Role 
---------------------------- 
 
¶6.  (SBU) Berlinghoff confirmed press reports that SPD Chancellor 
Candidate, Foreign Minister Frank-Walter Steinmeier, has a 14 point 
 
BERLIN 00000569  002 OF 002 
 
 
plan for Opel, laying out conditions for potential buyers to receive 
Berlin's approval.  Berlinghoff dismissed the plan as little more 
than throwaways conceived to attract votes in an election year, but 
the plan's emphasis on guaranteeing jobs and preventing the closure 
of Opel factories provoked a sharp rejoinder from the EU Commission 
on May 12.  The EU pointed out that its regulations require all 
member states with Opel plants to coordinate rescue plans with 
Brussels. 
 
¶7.  (U) On May 14, leading Cabinet Ministers and Chancellor Merkel 
agreed to Economic Minister zu Guttenberg's proposal to create a 
trust to provide approximately 1.2 billion Euro to Opel over should 
GM become insolvent.  Opel shares deposited with the trustee would 
act as security for the loans.  The trust would exist only until 
Opel's future is decided.  To activate the trust, a private investor 
must submit a substantive proposal by Wednesday, May 20.  Zu 
Guttenberg argues that the trust will pose little risk to taxpayers' 
money.  Officials expect at least one substantive bid by May 20. 
 
¶8.  (SBU) Chancellor Merkel and Economics Minister zu Guttenberg 
have consistently rejected proposals from their SPD coalition 
partner and the Opel unions calling for the state to buy up Opel 
shares, and have instead pressed for loan guarantees.  The trust 
solution, which the SPD has signed off on, is meant to provide the 
impression that the government is not providing direct support to 
Opel.  Hesse Minister President Koch, however, confirmed that state 
banks such as the Reconstruction Bank and banks owned by Federal 
states where Opel has plants will finance the loans, which would 
receive state guarantees.  Koch stated he expects tough negotiations 
with the U.S. government over Opel. 
 
¶9.  (SBU) It is not entirely clear whether the EU would have to 
authorize the trust, as it would be independently run.  However, 
should the German government feel compelled to openly intervene to 
save Opel; the EU could assert its power of approval and call for 
coordination with EU Member States with GM plants.