VZCZCXRO6802
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSL RUEHSR
DE RUEHRL #0897/01 2080544
ZNR UUUUU ZZH
O 270544Z JUL 09
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4700
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNFRG/FRG COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 BERLIN 000897 
 
SENSITIVE 
 
SIPDIS 
TREASURY FOR RON BLOOM AND JEFF BAKER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ELAB GM
SUBJECT: OPEL SALE COLLIDES WITH POLITICS 
 
¶1.  (SBU)  SUMMARY.  Always be prepared for the unexpected: 
that might be the moral of the story in the German Opel deal 
so far.  Just as the independent new GM-Europe trust fund was 
expected to announce its decision on the complex sale of 55 
percent of General Motors' (GM's) holdings in the car maker, 
the German board members of the Trust - appointed by the 
German federal government and the four German states 
(Laender) with Opel plants - threw a wrench in the works by 
voting against the deal favored by the German state and 
federal governments.  For weeks the GM Europe trust fund 
("Treuhand") board has examined proposals from potential 
investors, with the field narrowed to two contenders: 
Magna/Sberbank and RHJ (Ripplewood).  The Chancellery and the 
four Laender had made it crystal clear that they favored 
Magna's offer  because it would allegedly save more jobs. 
Although details of the board's July 22 deliberations were 
not made public, the government announced that the deal was 
deadlocked.  What is more, the press reported that one of the 
trust's two German government members had joined the two GM 
reps in favor of Ripplewood, whereas the other called for 
outright insolvency, i.e., the dissolution of Opel. 
 
¶2.  (SBU)  Meanwhile, the German government is keeping Opel 
afloat for up to six months with  a 1.5 billion euro bridge 
loan, and has pledged up to 3.0 billion euro in additional 
loan guarantees to the "New Opel" expected to emerge from 
this process.  Once the Treuhand selects an investor, new 
negotiations involving the governments of countries hosting 
other GM-Europe operations will commence to determine how 
much assistance they are prepared to offer - and indirectly, 
how many plants and jobs will be saved in those countries. 
Despite the large amounts of financing needed and the risky 
stakes, German government interlocutors seem confident that 
Opel will emerge as a stronger company and that German 
government funds will not be lost.  END SUMMARY. 
 
 
A Complex Deal 
--------------- 
 
¶3.  (U)  General Motors (GM) has offered 55 percent of its 
Europe holdings to investors and will retain 35 percent as a 
minority stockholder.  (Opel workers and dealers would 
presumably take  10 percent.) These include holdings in Opel 
(with plants primarily in four states in Germany, and 
operations in Spain, Poland, and Belgium), as well as 
Vauxhall in the UK.  The new investor will combine these 
operations into a newly restructured, leaner company.  GM 
holdings in Saab have already been sold, and almost everyone 
believes the plant in Antwerp will close.  The deal was 
supposed to be completed as early as this week, but now will 
probably be pushed into August. 
 
¶4.  (U)  The German media has been obsessed with the fate of 
Opel and its connection with GM, releasing daily reports of 
varying quality and veracity.  To better ascertain what is 
happening, EMIN and Econoff met with Fred Irwin, Chairman of 
the GM Europe Trust, Jochen Homann, State Secretary in the 
Ministry of Economics and head of the German Government's 
Opel Task  Force, and Winfried Horstmann, Chancellor Merkel's 
advisor on industry including Opel, and others. 
 
 
Who Makes the Decision? 
------------------------ 
 
¶5.  (SBU)  Three potential investors have presented 
proposals: the Canadian Auto Parts Manufacturer Magna (in 
association with Russian Sberbank and Gaz, a car maker), the 
international investment firm RHJ(I) (a.k.a.  Ripplewood), 
and the Chinese Auto Company BAIC.  Press reports on July 24 
confirm that BAIC is no longer under consideration. 
 
¶6.  (U)  Although the Trust is supposed to decide which 
proposal to accept, no single entity will make the final 
call.  GM has placed those shares to be sold into the Trust, 
whose Board has five members, one from GM Detroit, one from 
GM Europe, one member representing the four state governments 
in which Opel plants are located (Thuringia, Nord Rhine 
Westfalen, Hesse, and  Rhineland Pfalz), and the German 
government.  The 5th member, German AmCham President and 
Citigroup country manager Fred Irwin, is the Trust's 
nonvoting President.  Irwin explained to  us that the Trust 
will not take a binding vote until it can reach a consensus 
among all the parties involved. 
 
¶7.  (U)  On July 22, the GM Board members presented their 
 
BERLIN 00000897  002 OF 004 
 
 
preference to the full Board and representatives of the 
German Government.  Press reports indicate that GM was 
leaning toward  RHJ(I), but may not make an announcement 
until it conducts its Supervisory Board meeting on the Opel 
issue on August 3.  Irwin told the Embassy that he had urged 
the GM representatives on the Trust Board to first inform the 
other Board members and consult with the German federal and 
state governments before going to GM Headquarters with its 
proposal.  The entirely  unexpected decision by the German 
Board members to turn against Magna, if true, means that 
there is likely to be considerable wheeling and dealing in 
the days and possibly weeks ahead. 
 
 
The Role of the Four States 
----------------------------- 
 
¶8.  (U)  Originally, the conventional thinking was that a 
restructured Opel would require the closing of at least one 
or two German plants.  Yet the governments of the four German 
states with Opel interests, focused entirely on keeping their 
Opel plants open and preserving much- needed jobs, managed to 
shift the equation.  By contributing half of the 1.5 billion 
euro "bridge  fund" to keep Opel in operation (Berlin 
contributed the other half), the Laender gained leverage in 
the negotiations, meaning that almost unnoticed, the Magna 
and (it appears) Ripplewood deals no longer spoke of closing 
any plants whatsoever.  Until a new investor can take over 
and arrange  sufficient funding, the state and federal 
governments are each contributing 50 percent, with the 
contributions as follows: Federal Government 750 million 
euros, Hessen 447 million euro, NRW 150 million euros, 
Rhineland Pfalz 102 million euro and Thuringia 51 million 
euro. 
 
¶9.  (SBU)  Thuringia, home to Opel's state of the art 
Eisenach auto plant and a technological symbol of the new 
eastern Germany, is a case in point.  German press reports 
originally indicated that the RHJ(I) wanted to mothball 
Eisenach for two years, prompting loud complaints from locals 
who feared that would mean permanent closure.  The press (and 
auto industry  representatives whom we interviewed) likewise 
had confidently predicted that Hesse's Kaiserslautern plant 
would be shuttered.  By the time we met with the 
Chancellery's Horstmann on July 22, however, he could confirm 
that these plans have since been dropped and that all three 
proposals (including BAIC) would keep every German Opel plant 
up and running.  The Laender reportedly have a strong 
preference for the Magna proposal, partly due to suspicion of 
foreign "hedge funds" like Ripplewood. 
 
 
Protecting Intellectual Property 
---------------------------------- 
 
¶10.  (SBU)  All of our interlocutors confirmed that 
intellectual property (IP) was a key sticking point in these 
negotiations.  GM holds the rights to Opel IP, much of which 
originated at the  Russelsheim facility, which employs 3,000 
technicians and engineers.  The German press repeatedly 
alleged that GM did not really own these rights, having 
purchased them from Opel with promissory notes that it never 
honored.  Horstmann and Homann both alluded to these stories, 
but confirmed that the German government has chosen to set 
these concerns aside in the  interests of a smooth and quick 
sale.  Irwin and others confirmed that GM would provide 
funding to keep the Russelsheim R&D facility in operation and 
save 3,000 jobs.  In return, the  new investor would pay 
royalties to GM at below the accepted market rate of 5 
percent, perhaps 3.5 to 3.8 percent, returning to 5 percent 
after several years. 
 
¶11.  (SBU)  GM was reportedly concerned that Russian 
involvement in the Magna proposal could allow a competitor to 
gain access to sensitive IP developed at great cost.  German 
government interlocutors played down this danger.  In their 
view, while a Chinese bid would cause serious concern, the 
new Opel would be able to restrict Russian access to IP (one 
source  added that Russian firms are more "trustworthy" than 
the Chinese.) 
 
 
Is the German Government Divided? 
---------------------------------- 
 
¶12.  (U)  The German press has described serious 
disagreements within the German government on the Opel sale. 
 
BERLIN 00000897  003 OF 004 
 
 
The state governments and the SPD, backed by the labor 
unions, are  purportedly strongly behind the Magna bid, as 
they believe RHJ(I)intends to gut Opel and sell it back to GM 
at quick profit.  They further allege that RHJ(I) does not 
have the expertise to manage an auto company and would repeat 
management "mistakes" committed by GM. 
 
¶13.  Economic Minister zu Guttenberg -- who represents the 
more entrepreneurial Bavarian  partner (CSU) to Merkel's CDU 
opposed an Opel rescue from the start and considered a 
controlled insolvency a better option.  Nonetheless, zu 
Guttenberg has lately maintained near  total silence on the 
matter, and his deputy, State Secretary Homann who heads the 
government's  task force on Opel, made on the record 
statements this week supporting the Magna bid.  The 
Chancellor's office was also fairly agnostic, but this week 
Merkel's spokesman and trusted  advisor, Ulrich Wilhelm, came 
out clearly in favor of Magna as well. 
 
 
Blaming GM 
----------- 
 
¶14.  (SBU)  For months, most newspapers here have blamed GM 
for running a 'perfectly good  German company' into the 
ground.  The predominant sentiment was that Opel should make 
a clean and total break from GM, and many worried that GM 
would attempt to repurchase the company once it recovers with 
German taxpayers' help.  Cooler heads prevailed, however, and 
now almost everyone realizes that Opel can only survive as 
part of a restructured GM-Europe entity. 
 
¶15.  (SBU)  The Economic Ministry confirmed to us that the 
German government has pledged  3.0 billion euro in loan 
guarantees to the "New Opel" until 2016.  This figure, when 
combined  with the 1.5 billion euro bridge loan guarantee 
means 4.5 billion of potential German government assistance 
available to the new investor.  Both Homann and Horstmann 
were confident that the  new company would survive, and that 
despite the obvious risks, both were confident that the 
German government would not lose money. 
 
 
HOW TO CUT 
----------- 
 
¶16.  (SBU)  The restructuring will undoubtedly be painful. 
Opel/Vauxhall employs just over 50,000 people throughout 
Europe, with 25,000 in Germany.  Everyone seems to agree that 
no  matter which proposal is accepted, some 10,000 jobs will 
be lost, of which perhaps 7500 will come from Germany. 
Naturally, German politicians want to keep job losses in 
Germany to an absolute minimum.  The Minister Presidents of 
the concerned states lobbied effectively and ensured that no 
proposal would close a German plant; instead, the losses will 
spread out over all  four factories. 
 
¶17.  (SBU)  With a national election looming in September, 
Opel has emerged as an obvious campaign issue.  The German 
government is determined to conclude the sale before 
elections begin, so as to deny the opposition a potential 
campaign issue.  Horstmann predicted that if the process 
became protracted and drifted into the campaign season, the 
SPD would surely use it against the CDU.  SPD candidate for 
Chancellor Frank Walter Steinmeier, the Vice Chancellor and 
Foreign Minister, has been an outspoken proponent of the 
Magna bid, and argued that the 4.5 billion state aid should 
only be available to Magna. 
 
 
The Role of Other Governments 
------------------------------ 
 
¶18.  (SBU)  As soon as the Treuhand accepts an investment 
proposal, we heard, an entirely new process will begin, as 
negotiations expand to include other governments.  These 
talks will be at least as complicated as the intra-German 
discussions. 
 
¶19.  (SBU)  Almost all sources indicate that the Opel plant 
in Antwerp, Belgium is likely to close regardless of which 
proposal is accepted.  Horstmann and Homann, for instance, 
confirmed that  the Belgian government has accepted the 
inevitable, and does not intend to try to save this plant by 
putting up lots of its own money.  German interlocutors 
indicated that the Spanish  government has stated its 
interest in keeping the Opel plant in Zaragoza open and is 
 
BERLIN 00000897  004 OF 004 
 
 
willing to commit public money to do so.  We know less about 
the Opel plant in Gliwice, but understand  that it is modern, 
state of the art, efficient, and unlikely to be closed. 
Press reports and British sources in Berlin say that 
organized labor is determined to keep Vauxhall plants open 
and that  the government may provide (undisclosed) funds for 
this purpose although job cuts are  inevitable. 
 
¶20.  (SBU)  For their part, Horstmann and Homann informed us 
that the governments of Spain and the UK will come forward 
with their own financial packages as soon as an investor is 
named.   They were less certain about Poland.  Both Horstmann 
and Homann pointed out that the 3.0 billion euros in loan 
guarantees pledged by Germany did not reflect the 
contribution of other  governments; as soon as London and 
Madrid put their own funds on the table, Germany's financial 
liability would be reduced.  They pointed out that in any 
case, these are loan guarantees rather than actual 
expenditures and would help procure commercial lending for 
the New Opel at lower rates.  German funds would only be 
expended if Opel defaulted. 
 
Comment 
--------- 
 
¶21.  (SBU)  The German government has presented a happy face 
to us regarding these complex negotiations although in our 
view, the process is fraught with risk.  Germany has placed 
4.5  billion euro on the table, while potential private 
investors would bring relatively little of their own money 
and would need commercial loans at a time when money is 
tight.  Although German  officials appear confident about 
Opel's quick recovery, Opel has been bleeding large amounts 
of money for some time and could require considerable 
investment before it is safely on its feet.   Pressure from 
the German state governments and organized labor could also 
tie the hands of an investor, as it now appears that any 
closure of German plants has been ruled out.  In the end, the 
German government may find itself taking on more than it 
bargained for. 
Bradtke