A worker sweeps the street next to destroyed logo of German car manufacturer Opel at a former car dealer in Berlin.PAWEL KOPCZYNSKI
General Motors Co. faces as much as $8.5-billion (U.S.) in costs to restructure and revive its troubled Adam Opel GmbH unit, and the German government warned GM it will have to bear most of that burden itself.
The staring contest between GM and Germany over Opel deepened as German Chancellor Angela Merkel issued the warning even as GM began to repay a bridge loan it received from Germany in May that has kept Opel afloat.
The furor over the future of Opel and who will pay to fix it erupted in the wake of GM's reversal of a previous decision to sell majority control of the company to Magna International Inc. and Sberbank of Russia. GM's unexpected move to hang on to Opel angered Germany, Russia and Opel's unions and raised the spectre of GM scrambling to scrape together at least €3-billion ($4.5-billion U.S.) of its own money to finance the repair job.
"This solution can only work if GM takes over the lion's share of the restructuring costs, which also means that it has to pay back the bridging loan," Ms. Merkel said. About 25,000 of Opel's 50,000 employees are based in Germany, where it has its headquarters and three assembly plants.
Moody's Investor Service Inc. calculated that GM will have to raise $8.5-billion to restructure and continue operating Opel. Even though the Germany-based auto maker is vital to GM's future, Moody's said the "rehabilitation price tag could severely stress GM's liquidity."
Letting Opel disappear altogether, however, would address a key problem hanging over the entire European auto industry - overcapacity.
Western Europe needs to slash capacity by two million vehicles, said Ferdinand Dudenhoffer, who heads the Center for Automotive Research at the University of Duisburg-Essen.
"The problem will become more critical because the weak [U.S.]dollar will not allow export from Europe into the dollar regions," Prof. Dudenhoffer said.
European auto makers were already grappling with 15 per cent to 20 per cent overcapacity before the liquidity crisis sent auto sales into a free fall last year, and the situation has probably worsened with the crisis, Credit Suisse auto analyst Stuart Pearson said recently.
"When you consider how much excess capacity there is in Europe, getting rid of Opel would be a good start," said one analyst who spoke on condition of anonymity. "You could argue that Germany doesn't need four car companies."
The view that Europe has too much capacity is shared by Fiat SpA chief executive officer, Sergio Marchionne, who abandoned Fiat's bid for Opel earlier this year.
Mr. Marchionne offered his best wishes to GM and Opel last week during a presentation in Detroit, but again chastised European governments for continuing to prop up inefficient factories.
Sberbank jumped into the fray Tuesday by saying it may sue GM over the cancellation of the deal.
Opel is critical to GM in several ways, Moody's said. The division develops small cars for GM, helps maintain purchasing power by maintaining GM's global presence and helps spread the costs of developing new vehicles over a larger base.
Magna is out of the picture, GM chief executive officer Fritz Henderson said in Germany, where he held a news conference and said the Moody's figure of $8.5-billion is almost double GM's estimate.
That's good news for Magna, said Standard & Poor's Ratings Services, which revised its outlook on the Aurora, Ont.-based auto parts giant to stable from negative.
The challenges Magna would have faced in turning Opel around are now reduced, S&P credit analyst Greg Pau said.
"These challenges include future effort to turn around the loss-making Opel, possible management distractions from Magna's core auto supply business and customers' concern over Magna's involvement in auto making," Mr. Pau said.
With files from Reuters