GM Plans Opel Spin-off

RUESSELSHEIM, Germany - February 28, 2009; Christiaan Hetzner, Gernot Heller qand Kerstin Gehmlich writing for Reuters reported yesterday that the European unit of U.S. carmaker General Motors said it planned to spin off its German arm Opel and needed 3.3 billion euros ($4.2 billion) in state aid to avert job cuts and site closures.

Following weeks of speculation about Opel's fate, GM Europe President Carl-Peter Forster told a news conference the German carmaker would be split off into a separate unit to be majority owned by its struggling U.S. parent.

Under the plan, outside investors would take a stake of more than a quarter, bringing an end to Opel's 80 years as a wholly owned unit of GM. Opel's UK affiliate Vauxhall would be part of the spun-off unit.

"There are still no decisions about plant closures or forced layoffs," Forster said. He added, however, that GM would be willing to sell a production site if that would help reduce overcapacity while securing jobs.

Forster later told German ZDF state television that there were signs the plan was making a solid impression in Berlin and that he continued to assume that GM would not become insolvent.

Citing sources in Chancellor Angela Merkel's government, newspaper Leipziger Volkszeitung said Germany could be ready to provide up to 5 billion euros worth of aid to help free Opel from GM -- provided an improved plan was put forward.

The four federal states where Opel has plants should shoulder a fifth of such aid taking the form of guarantees, loans or even temporary stakes in the firm, the paper said.

Berlin expected up to 8,000 jobs to be lost in a successful overhaul, it added, noting that the sale of Opel's Eisenach plant to rival Daimler was a growing possibility.

Like other carmakers around the world, Opel is trying to cope with a sharp drop in demand as consumers retrench due to the global financial crisis and sharp economic downturn.

On Thursday, some 15,000 Opel workers demonstrated against job cuts in Ruesselsheim, the headquarters of the company which traces its roots in Germany back to the 19th century.

Kurt Beck, premier of Rhineland-Palatinate, the state where Opel employs around 2,300, said in a statement the proposals were a "step in the right direction that one could build on."

"I hope that by April the parties concerned can come up with a viable plan in which for example specific questions such as the issue of patent rights can be resolved," he added.

Opel chief Hans Demant said he was confident the company could rely on voluntary redundancies to help reduce structural costs by $1.2 billion and avoid shutting factories such as an ageing plant in Bochum, western Germany.

BILLIONS FROM GOVERNMENTS

Forster said the company was seeking 3.3 billion euros in aid from European governments to stay afloat and provided reassurances that this figure would not rise as speculated in the German media this week.

"We expect that this amount -- however it is given, whether in the form of a loan or guarantee -- would be paid back at the latest by 2014-2015," he said.

GM wants to present the plan, which was backed by European union boss Klaus Franz, to the German government next week.

Franz has said he wants to share the burden of job cuts across Europe to save any single plant from being closed. In addition to four plants in Germany, Opel has factories in Antwerp, Belgium and Ellesmere Port in Britain.

Merkel, facing an election in September, wants to save as many of the roughly 25,000 German jobs at Opel as possible and the government has said it will consider offering help.

A major concern of the government is that any state aid could end up flowing back to GM, which on Thursday posted a loss of nearly $31 billion for 2008. The Detroit-based firm is itself seeking a federal bailout to stay afloat.

"It's good that we have a plan now," Economy Minister Karl-Theodor zu Guttenberg said. "We will look at its viability starting on Monday."

German Vice Chancellor Frank-Walter Steinmeier, a Social Democrat who will challenge Merkel in September's election, reiterated the government was fundamentally ready to help Opel.

"We must do what we can so that this company does not disappear from the market," he told MDR Info radio.

Last week, another of GM's European brands, Saab, filed for protection from creditors. The Swedish government has criticised GM for basing its request for state aid for Saab on assumptions it claims are too optimistic.

For Reuters writing by Madeline Chambers and Noah Barkin; editing by Simon Jessop, Gary Hill