Germany rules against aid for GM's Opel, for now

FRANKFURT/BERLIN (Reuters) - Germany dashed Opel's hopes of receiving state aid on Monday, at least initially, in a ruling the carmaker believes was motivated by sovereign debt crisis rather than anger over perceived sins committed by its Detroit parent.

General Motors may now be forced to contribute more than the planned 1.9 billion euros ($2.55 billion) of U.S. taxpayer funding to keep Opel afloat as the loss-making European brand slashes 20 percent of its capacity and rejuvenates the bulk of its model range through the end of 2014.

"GM is naturally very disappointed with this decision as is Opel after such a very long process. We've spent a long time answering many, many hundreds of questions being reviewed by many, many different committees," Opel Chief Executive Nick Reilly told reporters on Wednesday

"I don't particularly understand the reasons why," he continued, adding he would now discuss with parent GM about possible funding options.

The decision to reject Opel's request for Germany to backstop 1.1 billion euros ($1.5 billion) of its borrowing revealed further cracks in Chancellor Angela Merkel's porous and largely unpopular center-right coalition with the liberal Free Democrats (FDP).

Some 48 hours after Berlin unveiled an 11.2 billion euro fiscal savings program, German Economics Minister Rainer Bruederle of the junior partner FDP took personal responsibility after a Monday stalemate within the German rescue fund, rejecting state guarantees for private-sector loans to Opel that he had opposed ever since taking office. [ID:nLDE6561E9]

Merkel, known as a pragmatic middle-of-the road conservative, said the "last word had not been spoken" over Opel and that she would "do everything" she could to ensure support to Opel's 25,000-strong German workforce.

Nonetheless, this decision would strengthen Bruederle's credentials as a politician who fights against state intervention while Merkel would preserve her reputation as the protective mother of the nation.

RETRIBUTION

GM last November unceremoniously junked Merkel's painstakingly brokered sale of a majority stake in Opel to her preferred bidder, Canadian auto parts supplier Magna , which she was prepared to finance with 4.5 billion euros in German state loan guarantees.

Reilly dismissed speculation that Berlin's decision was the penalty GM had to pay politically for its last-minute backout.

"Had this decision been made at the end of last year or beginning of this year, the climate was different and I think the answer might have been different," the Opel CEO explained.

"But now we've been caught up in the current economic and political difficulties that obviously are in the country. I think that has changed the climate for the decision quite significantly ... so I would not call this retribution."

Reilly said that he did not anticipate running into any dramatic liquidity problems for the remainder of the year, a signal that insolvency is at least not an immediate risk.

Going forward, Opel expects to submit all new applications for guarantees at a regional level with four state governments in Germany that Reilly believes would likely contribute between 25 and 50 percent of the 1.1 billion euros required.

He added that other state aid programs outside of the German rescue fund still existed as options, but conceded that were these in fact an easier route, Opel would have already tapped the facilities.

The state premieres of Hesse, North-Rhine Westphalia, Thueringia and Rheinland-Palatinate are due to meet with Merkel on Thursday to discuss how Germany can still provide support.

($1=.7453 Euro)

(Reporting by Christiaan Hetzner; Editing by Hans Peters)

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