Germany/World economic crisis

Opel rescue plan stalled, talks could go on for weeks

Article published on the 2009-03-06 Latest update 2009-03-06 19:17 TU

Carl-Peter Forster, CEO of General Motors Europe
(Photo: Reuters)

The German government has said that talks to help save troubled car manufacturer Opel, could last for weeks, as directors from the company met with German officials and representatives from Opel’s parent company, General Motors, on Friday. But there are concerns about the ownership of Opel's intellectual property rights and the use of cash from any rescue plan by the US parent company.

Opel, which was founded in 1863, is at risk because it’s parent company General Motors announced this week that it could face bankruptcy due to the world financial crisis. The subsidiary itself has also experienced falling sales and risks plant closures.

“The auto industry is not the only struggling industry at the moment,” says Professor Chris Higson, from the London School of Economics. “There seems to be a political will to help the auto industry, but precisely how to do that, in the case of GM, is quite challenging."

The German subsidiary, bought by the world’s second largest car manufacturer in 1929, employs 26,000 workers in Germany and 50,000 across the continent.

And Carl-Peter Forster, the head of GM Europe, which operates Vauxhall in the UK and Saab in Sweden, has asked the government for 3.3 billion euros in state aid to help the failing firm.

“General Motors, of course, will want to hold onto to whatever it can […] there’s an issue of interconnectedness,” says Higson, an industry expert.

“All the big car manufacturers have been globalising so energetically over the last ten or 20 years to try and get some economies of scale, in order to lead a competitive industry,” he says. "And that argument is still very relevant, on its own, Opel and Vauxhall would struggle."

But there are concerns that any state aid package could lead to money being funnelled back to the US operation.

There are also political considerations. Chancellor Angela Merkel faces a general election in September, and there have been criticisms of Opel’s rescue plan, which Finance Minister Peer Steinbrueck described as providing “no basis” for making a decision on granting government aid.

Some reports have suggested that Chinese automaker Geely Automobile could be interested in buying Saab from GM and on Friday, Li Shufu, chairman of the organisation said, “Geely is paying close attention."

In Germany worries have focused on ownership of Opel’s intellectual property rights. Deputy Economy Minister Dagmar Woehrl told parliament on Wednesday that GM pledged Opel’s intellectual property to the US Treasury in exchange for public aid.

“The most optimistic scenario is one where national governments, maybe regional governments, will provide temporary equity, buy a stake and inject that equity into the European operations,” says Higson.