Future of Opel is hot topic in Germany
GM hoped to line up investors for cash-strapped Opel by mid-July. But as sale talks drag on, the carmaker's fate is turning into a hot-button issue ahead of national elections taking place Sept. 27.
GM chief negotiator John Smith, now in Berlin for more discussions, is likely to encounter increasingly exasperated officials.
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The coalition government headed by Chancellor Angela Merkel has fronted Opel $2 billion in emergency loans, and last week proposed to offer $6.4 billion -- if GM agrees to a deal that would transfer control of Opel to Magna International Inc. and its Russian partners.
That offer does not, however, extend to a rival bid from Brussels-based RHJ International SA, which has ties to the private equity firm Ripplewood Holdings.
In Germany, private equity firms have a bad reputation as investors that strip and abandon companies. Ever since a senior politician called them locusts in 2005, that term has stuck.
Chrysler LLC's weak performance in the two years it was owned by Cerberus Capital Management LP reinforced that view.
Heike Buchter, a correspondent for the German newspaper Die Zeit, said it would be politically risky for Merkel's moderately conservative Christian Democratic Union party to even consider financing the acquisition of a carmaker by a private equity firm.
"She could do that if it weren't 30-odd days before the election," Buchter said. But now, "it would be awfully hard."
Last Friday, Germans were stunned when GM's board announced no decision after reviewing the Opel bids. Merkel and other politicians took to the airwaves to express their disappointment as the plight of the carmaker and its 25,000 employees in Germany became an ever bigger election issue.
GM's board directed management to explore more alternatives for Opel, including raising money to keep the carmaker based in Rüsselsheim.
It has been losing money at the rate of about half a billion dollars a year, according to sources close to the carmaker, and there are reports that Opel could lose more than $2 billion this year.
Smith is expected to press German officials to consider aid for an RHJ bid -- which he has described as simpler and easier to implement than the complex Magna-led proposal.
Under that plan, Magna and Russia's Sberbank would each acquire 27.5 percent of Opel. GM would keep 35 percent, and Opel employees would get
10 percent.An RHJ bid is more likely to keep Opel in its current form -- leaving open the possibility for GM to buy it back.
Opel plays a substantial role in GM's global vehicle development process and has developed the architecture for all of GM's compact and mid-size cars.
"In the Ripplewood plan, it looks like the new Opel will be like the old Opel, only with 10,000 fewer people," said Christoph Stürmer, a Frankfurt-based analyst at IHS Global Insight.
"Politicians are ready to sink so much money into Opel, and they want a better company as a result," he said.
Complicating matters, President Barack Obama seems unresponsive to Merkel's concerns about the Opel talks.
Obama is keeping his distance, making the point that even though the U.S. government is GM's majority shareholder, it's not running the company -- the board is.
But Washington is not ignoring the issue. U.S. Secretary of State Hillary Clinton discussed Opel with German Foreign Minister Frank-Walter Steinmeier in a call on Saturday, according to a State Department spokeswoman.
In addition, a White House auto task force member is working on the Opel issue full-time.
GM has a sizeable amount of money in escrow -- more than $10 billion -- from the government's $50 billion in loans. GM would need government approval to put money into Opel and would probably not receive it unless it restructured Opel, a U.S. official told The Detroit News.
Among Germany's domestic carmakers, Volkswagen AG has come out against state aid to Opel. Other automakers and analysts believe the industry would benefit from a reduction in car-making capacity if Opel were restructured and not simply rescued.
But the election seems to be influencing the government's preference for Magna, said analyst Jürgen Pieper at Metzler Bank. "It looks like the most popular alternative," he said.