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.