After almost seven months of jumping through hoops and dealing with German politics in efforts to secure €1.8 billion in loans for its Opel and Vauxhall brands, General Motors has announced that it will cease pursuing the funds.
Instead, GM will meet the funding requirements for the European brands internally, a feat that has become a lot easier given The General’s recent return to profitability and much-improved financial strength.
GM made the decision Wednesday after Angela Merkel’s (German) federal government voted against loan guarantees to Opel/Vauxhall, citing GM’s improved financial position in the first quarter of 2010. In other words, the German government is of the opinion that GM is doing well enough to support its children out of its own pocket.
In March, GM contributed €1.9 billion ($2.2 billion at the current conversion rate) of its own funds to Opel/Vauxhall and submitted a loan request to the European Union for an additional of €1.9 billion. To date, only the UK and Spain have each confirmed roughly $405 million in aid.
The total cost of the Opel/Vauxhall bailout will cost roughly €3.3 billion ($4.1 billion) and will go toward developing new products and technologies. GM Europe, especially Opel, is directly responsible for engineering of GM’s global compact and midsize platforms, including the Delta (Chevy Cruze, Opel Astra) and Epsilon (Chevrolet Malibu, Buick Regal and LaCrosse) architectures, respectively.
The GM Authority Take
Besides finally being able to breathe a huge sigh of relief in lieu of having this standstill come to an end, there are two major questions that we need to ask.
First – how will U.S. taxpayers, who indirectly own General Motors by bailing out The General in 2009, react to this news? Indeed, the argument could be made that Opel/Vauxhall are receiving TARP funds, collected from US taxpayers. While this argument may be politically correct, we need to keep in mind that GM already posted a profit for Q1 2010. Where the Opel/Vauxhall funds come from at this point is purely a technicality.
More importantly, will The General somehow commend the UK and Spain for approving loan guarantees while retaliating against the German government for denying its loan application? We have yet to see, but I would suspect that going forward, GM will find it easier to keep a UK plant open at the expense of a Germany facility.
Opel/Vauxhall to Withdraw All Applications for Loan Guarantees
Funding Requirements to be met internally
2010-06-16
Rüsselsheim / Detroit. General Motors and Opel/Vauxhall have decided to withdraw all applications for government loan guarantees across Europe.
There have been no material alterations in the funding requirements of Opel/Vauxhall as set out in the Viability Plan announced seven months ago. The validity and reasons for requesting government guarantees have also not changed, but the process has proven to be much more complex and longer than anticipated and the results are still not finalized or certain. In these circumstances, and given the need to progress the plan quickly, it has been decided to fund the requirements internally. GM’s recently improved financial strength has also been a catalyst for making this decision.
“We appreciate the support indicated by certain governments, especially the UK and Spain, but we need to move on,” said Nick Reilly, President of GM Europe and Chairman of the Management Board of Opel/Vauxhall. “The decision of the German government last week was disappointing and means that the conclusion of these guarantees is again likely to be months away. To be clear, our funding needs have not changed and we were led to believe that loan guarantees made available to other European companies under the EU program to help offset the impact of the global economic crisis, would be equally available to Opel/Vauxhall. But, after a very long process defined by governments, this has turned out not to be the case,” he said. “We are grateful for the decision and support of our parent company, which will allow us to move forward with confidence in this very competitive industry. We cannot afford to have uncertain funding plans and new time-consuming complex negotiations at this time when we need to keep investing in new products and technologies. With these new products and the impact of restructuring, we expect to return to profitability shortly,” Reilly added.
As part of a European-wide request, the UK government had committed guarantees for €330 million of bank loans and a similar amount had been indicated from Spain. The total amount requested from all European governments had been in the order of €1.8 billion. The German federal states have expressed a willingness last week to enter into new negotiations. Two weeks ago, Opel/Vauxhall had signed agreements with its European employee representatives for restructuring the company, labor cost savings and for commitments to product investments. These agreements are not tied to government guarantees.
Following this announcement, Opel/Vauxhall will be able to fully concentrate on the implementation of its growth plan, in particular the €11 billion investment plan into future products that was announced in February. Opel/Vauxhall products continue to be highly successful in the marketplace, with sales volume consistently beating internal expectations. The new Astra 5-Door version which was introduced at the end of last year, already registered more than 160,000 orders within 6 months – just 20,000 orders shy of the full-year target of 180,000. For the new Meriva, Opel/Vauxhall received 30,000 orders within just a few weeks. The company continues to be on track for the launch of seven new products this year and another five next year, including the revolutionary new Opel/Vauxhall Ampera.
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June 26, 2010 at 2:56 pm
SCREW Germany. Who wouldn’t lend money to a large corporaton that is backed by the US Government (somewhat), AND who already have the money to pay the loan off? Seems like a win win to me if I am a lender. Interest anyone? Whatever…