GM Europe hangs in balance as talks in Germany falter

Bridging loan negotiations in Berlin are expected to conclude today, say sources

By Sarah Arnott
Sunday 23 October 2011 08:58

Fraught loan negotiations between the German government and GM Europe (GME) are finally expected to conclude today – two days later than planned and with a €300m (£262m) higher price tag.

The future of the company – which includes Vauxhall in Britain and Opel in Germany – was thrown into chaos when the loan talks collapsed on the brink of a deal on Wednesday night after GME's beleaguered US parent suddenly upped its request.

But discussions continued throughout yesterday and are expected to be decided today, according to sources close to the negotiations. Any announcement on the loan may also include the selection of a preferred bidder from either Fiat or Magna, the two potential purchasers of GME.

The UK Government is keen to allay fears about the future of the 5,000 workers at Vauxhall's two UK factories. Lord Mandelson, the Business Secretary, has offered short-term financial support to Vauxhall during the acquisition process, although a German loan should make such assistance unnecessary, and will also step in with funding to support GME's sale.

But before a sale can be agreed, GME needs money to keep going. And the German government expressed "outrage" at the last-minute jump of €300m. GME says that the extra money on the loan is needed to cover the cost of a massive share transfer needed to ring-fence the European operations from the US parent. The transactions, which were concluded on Wednesday, shifted all GME's European businesses, manufacturing sites and vehicle stocks into Adam Opel Gmbh – the full name of the German division. While vital to establishing GME as a separate legal entity into which a third party can invest, the moves not only cost money, but also brought forward the company's liquidity problems.

In parallel with the loan negotiations are discussions with the companies bidding for GME. Until this week there were three bidders but RHJ International, part of a US private equity company, pulled out on Wednesday leaving only Fiat and Magna in the race. Rumours of interest from China's Beijing Automotive Industry Corporation are yet to turn into firm proposals.

The offers submitted last week require substantial public investment. Fiat's plan is understood to have a price tag of £7bn, Magna's nearer £5bn.

British trade unions have warned that jobs in the UK are under threat. But Lord Mandelson maintains that both Fiat and Magna see a long-term future for car production at Ellesmere Port and Luton. Neither will Germany's provision of both bridging finance and the lion's share of investment be used as a political tool to guarantee German jobs at the expense of Vauxhall. "I will continue to coordinate closely with the German government because our interests are identical in securing the commercial viability of GME, including Opel and Vauxhall," he said.

Yesterday also saw developments for GM in the US. After days of brinkmanship with the holders of a $27bn (£17bn) bond, the US Treasury stepped in to broker a deal offering creditors a bigger stake in the company in return for support for a quick bankruptcy. The rapprochement will not save the company and GM is expected to go into Chapter 11 bankruptcy protection on Sunday as a route to turning it around.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

View comments