Rescuing GM in Europe: A Political Hot Potato

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Gero Breloer/AP

German Finance Minister Peer Steinbrueck lights a cigarette during a meeting with Chancellor Angela Merkel, Economic Minister Karl-Theodor zu Guttenberg and Foreign Minister Frank-Walter Steinmeier in Berlin's Chancellery on May 28, 2009

As a marathon negotiating session in the German Chancellery over the future of General Motors' European operations ended inconclusively on Wednesday night, rancor is growing elsewhere in Europe over the prospects of deep job losses.

Although just half of GM's European businesses are located in Germany, Berlin has effectively grabbed control of efforts to save GM's Opel and Vauxhall operations, which GM's board in Detroit this week centralized under Opel's control. But Belgium and the U.K. are no longer willing to just follow Berlin's lead. Politicians and union leaders there fear that Chancellor Angela Merkel, facing re-election in September, is preparing a deal that would save GM jobs in Germany at the expense of plants in their countries. (See 10 milestones on the road to GM's bankruptcy.)

"A one-country solution for a truly European-based company seems not in line with the idea of a European Union and its legislation," Belgian Prime Minister Herman van Rompuy wrote in a letter to the European Commission this week. He is worried about the fate of 2,600 workers at an Opel plant in Antwerp, which is slated for closure under some of the rescue plans under consideration.

Not that any solution is in the offing immediately, even after 11 hours of talks in Berlin. German participants said the U.S. government and GM appeared to be stalling. For weeks, talks have focused on a German government–backed credit for Opel of €1.5 billion ($2.1 billion). But German officials said the U.S. surprised them on Wednesday with a new demand for an additional short-term credit of €300 million ($416 million). The U.S. government also rejected the German government's plan to impose itself as a kind of administrator over Opel's management. After the meeting, the Germans blamed the Americans for the lack of progress. "Once again we were confronted with surprises, especially from GM," said Germany's Economics Minister, Karl-Theodor zu Guttenberg. (See pictures of Detroit's decline.)

Participants said talks were tense and frustrating. While Germany was represented by Merkel and two key ministers, Washington sent a midlevel Treasury official who was unable to make any definitive decisions. Several times during the meeting, the U.S. negotiator broke off talks to consult with his superiors by telephone back in Washington. "The meeting ended in a disaster because of the obstructive behavior of GM and the U.S. [Department of the Treasury]," said one German attendee.

Germany and the U.S. will renew efforts to thrash out a deal at a meeting set for Friday. But the clock is ticking. GM has until June 1 to present the U.S. government with a convincing restructuring plan, or it will be forced into insolvency. That would further complicate any effort to save GM's Opel and Vauxhall plants. (Read "Government Motors: Can a Reinvention Really Save GM?")

Knowing that Merkel is under pressure because she has made saving Opel a key campaign issue, GM could be using the threat of insolvency to pressure Berlin into providing more aid. Merkel and her political rivals, the Social Democrats, have come too far down this road to back out now, some German commentators have suggested, exposing the government to high-pressure tactics from the U.S.

The Austrian-Canadian Magna group and Italy's Fiat SpA remain the strongest bidders for Opel. Under pressure from trade unions and key leaders of German states where Opel operates, Berlin has appeared thus far to favor the plan presented by the Austrian billionaire Frank Stronach, whose Magna group is a major worldwide supplier of components to GM. Stronach has teamed up with Russian carmaker OAO GAZ Group and the state-controlled Russian financial group OAO Sberbank. Russian Prime Minister Vladimir Putin has been lobbying Merkel to support the Magna bid. Stronach told reporters on the sidelines of Wednesday's meeting in Berlin that Magna "could run Opel as a global brand." (Read "Can Americans Learn to Love Fiat? Chrysler Hopes So.")

The Magna consortium, which pledges to invest €700 million ($970 million) in Opel, has softened its position on job cuts and plant closings several times under pressure from German politicians. Magna's plan would leave GM with 35% of the company and Sberbank with a 35% stake, while Magna would take 20% and Opel employees would control 10%.

Italian carmaker Fiat also remains a contender. Fiat CEO Sergio Marchionne has been jetting between the U.S. and Europe for weeks, meeting on both sides of the Atlantic with key politicians, unions and investors. Fiat recently acquired Chrysler and now wants to merge GM's European business into the Fiat-Chrysler group to create one of the biggest carmakers in the world. His plans to close plants in Germany and Italy have been roundly condemned by powerful German governors and the IG Metall trade union. A Chinese carmaker, Beijing Automotive Industry Corp., is expected to detail its own plan for Opel next week. (See the 50 worst cars of all time.)

The loud protests in Germany in the run-up to the nation's general elections have raised fears that GM's European plants outside Germany, such as those in Antwerp and several Vauxhall facilities in the U.K., could become easier targets for closure. British unions are urging Prime Minister Gordon Brown to prepare an aid package for Vauxhall to give the U.K. a voice at the table, but so far London has proffered no numbers.

Whatever deal eventually emerges, experts warn that Opel's future is anything but rosy in a car industry beset by a massive erosion of demand. The Financial Times reported that the offer document GM sent out to bidders last month predicted a loss before tax and interest payments of more than $3 billion at its European businesses this year. (See pictures of GM.)

In the end, money will do the talking, and Germany's deep pockets give the nation plenty of clout. But around Europe, anger is rising that German politicians are playing a deadly game of poker with GM for which others might end up paying the price. "We cannot get into a situation where everyone is trying to outdo each other, in which we see how much money Germany can put on the table and how much we can," said Flemish Premier Kris Peeters. After all, he, too, faces elections this year.

See 10 milestones on the road to GM's bankruptcy.

See the 50 worst cars of all time.