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OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHFT #1487/01 1590545
ZNR UUUUU ZZH
O 080545Z JUN 09
FM AMCONSUL FRANKFURT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0744
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCNFRG/FRG COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 FRANKFURT 001487 
 
STATE FOR EEB (NELSON) AND EUR/CE (SCHROEDER) 
LABOR FOR ILAB (BRUMFIELD) 
TREASURY FOR ICN (KOHLER) AND CARR 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ELAB GM
 
SUBJECT: STRONG REACTIONS TO OPEL/MAGNA 
 
REF: BERLIN 664 
 
¶1. (SBU) Summary: On May 31, just a day before GM filed for 
bankruptcy, the tug-of-war for the car manufacturer Opel broke 
loose, resulting in a deal for Austro-Canadian car supplier Magna to 
take over Opel from GM and the German federal and state governments 
pulling together EUR 1.5B in immediate bridge financing. Reactions 
in Frankfurt's district, which includes Opel's headquarters and a 
Kaiserslautern plant, are quickly dividing into two distinct camps - 
those that support the deal and the survival of Opel (the "Merkel" 
position) and those that sharply criticize the deal as being too 
costly for taxpayers and possibly financially ill-advised (the "zu 
Guttenberg" position). In addition, contacts voiced general concern 
to outright anger over government rescue packages and how they are 
determined, a debate that has been long simmering, but through this 
deal, has now intensified. End Summary. 
 
REACTION FROM THE CENTER - OPEL HEADQUARTERS, RUESSELSHEIM, HESSE 
 
¶2. (SBU) In ConGen Frankfurt's conversation with current Opel CEO, 
Hans Demant, Demant complained that the most recent negotiations had 
been conducted "without participation" of himself and other Opel 
executives.  Management was simply informed that the German 
government had chosen Magna after the fact. (Note: On June 3, Magna 
made its first decision for the new company and announced that 
Demant would be replaced by GM-Europe head, Carl-Peter Forster, as 
CEO of the new independent entity.) Despite this, Demant stated that 
out of the three serious bidders, management had always preferred 
either Magna or Ripplewood, a financial firm, to Fiat, primarily 
because Fiat did not want to maintain a long-term relationship with 
GM. Demant stated it is "hard to imagine a complete break from GM 
after being together such a long time." (Note: The current deal 
would give controlling interest to Magna, Sberbank (a Russian bank), 
and Gaz (a Russian auto manufacturer), but leave GM with 35 
percent.) He sees additional advantages to the fusion with Magna 
including access to developing markets, especially Russia. 
 
¶3. (SBU) Demant expects facilities in Ruesselsheim will remain 
relatively intact with only limited workforce reductions.  The 
future for the Kaiserslautern plant is murkier, with the plant 
having already considered job reductions for months and uncertainty 
about what components or motors will continue to be built there. 
Without being able to officially confirm the information, Demant 
stated the headquarters for the new independent entity would 
certainly be in Germany, indicating it would be in Ruesselsheim. 
Demant communicated that the EUR 1.5B bridge should last through the 
end of the year, by which time the final Magna deal will have to be 
in place, as "there will not be any additional credit forthcoming." 
That said, he expressed management's strong desire to complete the 
transaction sooner rather than later. 
 
REACTIONS FROM "OPEL STATES" - RHINELAND-PALATINATE AND HESSE 
 
¶4.  (SBU) Reactions in Rhineland-Palatinate (R-P) over the 
Magna/Opel deal are mixed.   R-P is directly affected, since it is 
home to a major Opel plant in Kaiserslautern with over 3500 
employees.  From the very beginning, R-P Minister President Kurt 
Beck (SPD) has favored Magna over Fiat.  After the decisive talks in 
Berlin, Beck as well as Alfred Klingel, chairman of the works 
council at the Kaiserslautern plant, welcomed the planned takeover 
by Magna.  Beck attacked Econ Minister Karl-Theodor zu Guttenberg's 
idea for a planned insolvency, stating that insolvency would greatly 
limit chances to save all the Opel plants in Germany.   Beck expects 
that no more than 280 jobs will be eliminated in Kaiserslautern, 
most of them via attrition.  R-P government, where the SPD has an 
absolute majority, approved EUR 100M of the EUR 1.5B bridge funds. 
On the flip side, the R-P FDP, until 2006 the coalition partner of 
the R-P SPD, sharply criticized the Opel deal.  R-P FDP chief and 
member of the Bundestag, Rainer Br|derle, doubts that the concept 
will help Opel survive and fears that taxpayers and Opel employees 
will get stuck with the bill in the end. 
 
¶5. (SBU) Contrary to R-P, the Hesse government and opposition 
parties are in general agreement concerning Opel, with even the FDP 
voting to support Hesse's share of the bridge financing (EUR 447M). 
In an uncommon statement for the Liberals, Hesse FDP caucus chief 
Florian Rentsch called the financing an "historic result," 
describing his party's perspective as a mix of optimism and 
skepticism and clarifying that this funding should be an 
"exception." Other Hesse government contacts expressed relief that 
Magna will be Opel's partner, believing this constellation ensures 
Ruesselsheim will remain Opel's headquarters. Addressing criticism 
of the Magna/Opel deal's financial underpinnings, the Hesse State 
Chancellery strongly disagreed with a calculation recently published 
 
FRANKFURT 00001487  002 OF 002 
 
 
in Handelsblatt, a German economic newspaper, which priced the Magna 
deal as 5 times more expensive than an insolvency. Contacts 
underscored that this calculation only takes into account short-term 
costs and that once "automobile sector jobs are eliminated in 
Germany, they will not return." Although the Hesse government has 
the opposition's support, SPD Hesse caucus Thorsten Schaefer-Guembel 
recently pointed out that if the state was prepared to take a direct 
share in Opel anyway, the problem could have been solved a long time 
ago. Beyond Opel, the Chancellery confided that Minister President 
Roland Koch(CDU)also profited from the negotiations by raising his 
profile with U.S. Treasury officials, whom he hopes to visit in the 
U.S. in June. 
 
BYSTANDERS?  BADEN-WUERTTEMBERG AND SAARLAND 
 
¶6.  (SBU) Baden-Wuerttemberg (B-W)is struggling with problems of its 
own in the automotive sector (Porsche) and does not have any direct 
Opel operations, however, this does not mean that B-W is at all a 
disinterested party.  Reactions from B-W are actually quite 
vehemently against what people see as "selective" government 
intervention.  B-W Minister President Guenther Oettinger (CDU) has 
always favored insolvency for Opel and has compared the direct 
involvement of the Grand Coalition to "the bursting of a dike." 
There is considerable bitterness within the B-W State Chancellery 
over Chancellor Merkel's engagement in the Opel takeover and her 
hesitation to help Porsche with its own financial problems. (Note: 
Porsche applied this week for EUR 1.75B in government loans.) This 
feeling is also reflected in the private sector.  Helmut Baur, board 
member of the national Association of Small and Medium-Sized 
Enterprises (SMEs), blamed federal support of large enterprises for 
negatively impacting many SMEs in B-W and stressed that in the 
Stuttgart region alone, there are 13 times as many jobs at stake in 
financially troubled SMEs than in Opel and Arcandor put together. 
(Note: German department store operator Arcandor has 86,000 
employees and recently applied for EUR 650M in state aid.)  "Nobody 
cares about their problems," Baur said.   Alexander Bonde, member of 
the Greens caucus in the Bundestag and Green spokesperson on 
budgetary issues, also criticized the Opel solution.  Bonde stressed 
that he does not have a "good feeling" about this deal and is 
concerned that the risks are not evenly distributed between the 
federal government, private investors and the German taxpayer. 
 
¶7.  (SBU) Saarland also does not have any direct Opel operations, 
but is nevertheless affected by the automobile sector crisis, as 
Ford is Saarland's biggest employer. Contacts at Ford were reluctant 
to provide any direct reaction to the Opel/Magna news, stating only 
that they did not see the federal support as providing an unfair 
competitive advantage to Opel, as has been theorized in the media. 
Instead, contacts boasted that Ford will not ask for capital 
injections or a guarantee by the state and that during the crisis, 
Ford has increased its market share in Germany (despite overall 
lower car sales). Saarland politicians have been similarly 
tight-lipped, with the exception of FDP Saar caucus chair Christopf 
Hartmann, who remarked that with state aid for Opel, "a new line has 
been crossed." 
 
¶8. (SBU) COMMENT: The Magna/Opel deal has brought into sharp relief 
a clear dividing line that runs throughout Germany, affecting not 
only states that have a direct stake.  Clearly in the run-up to the 
federal elections, ruling parties and coalitions have stepped in 
line with the position encapsulated by Chancellor Merkel's comment, 
"There was no other political solution."  The opposing camp, made up 
not only of opposition parties, but also of Econ Minister zu 
Guttenberg himself, has become increasingly aggressive, highlighting 
the overall cost of the deal and questioning behind the scenes 
whether such a deal made under such time pressure will be sound, 
referring to the old adage "If you want it bad, you get it bad." 
The ripple effect of the government's intervention in a private 
(non-financial) enterprise has also unleashed concern and bitterness 
in the broader economic community. All of the states in Frankfurt's 
district are following with great interest the additional funding 
requests, such as those from Porsche or Arcandor. In the end, both 
camps - those for and against, are also waiting to see what a final 
agreement for Opel will look like, each hoping it will validate his 
position.  What most contacts do agree on is that we have not yet 
read the last chapter of this story. End Comment. 
 
POWELL