Opel CEO Nick Reilly will have to lead a turnaround without government aid.
After having the Berlin government reject a bailout request for its troubled Opel subsidiary, General Motors is withdrawing a bid for help from other European governments and will now seek to fund the operation’s recovery on its own.
The announcement is the latest twist in a saga that began even before GM’s own U.S. bankruptcy, last year, which triggered a $50 billion package of aid from the American Treasury. At one point, while the giant automaker was struggling for survival, it gave serious thought to selling a majority stake in German-based Opel and its British sibling Vauxhall.
But in recent months, with its own recovery proceeding better than anticipated, GM has not only been able to hang onto Opel, but now believes it can handle the financing of the unit’s turnaround.
“Given the need to proceed quickly,” a GM statement said, it can no longer wait while trying to negotiate assistance from various European governments. That bid was dealt a severe blow, last week, when the administration of German Chancellor Angela Merkel rejected the latest request for Opel aid.
Berlin had provided short-term loans, last year, but ordered GM to pay them back when it decided to abort the sale of a majority stake in Opel to a Russo-Canadian consortium led by the North American mega-supplier Magna International. Both the German government and Opel’s powerful union IG Mettal, had favored the sale.
GM had also been hoping for assistance from other European governments with a stake in Opel’s survival, including Spain. In all, it had sought 1.8 billion Euros, or $2.2 billion at current exchange rates.
But the company said its “recently improved financial strength has also been a catalyst for making this decision” to go it alone.
In May, Opel and Vauxhall won $332.5 million in givebacks from union workers, a deal that includes a number of job cuts. A one-time payout to workers was eliminated, and a 2.7% pay raise was delayed. Workers also agreed to reductions in holiday and Christmas bonuses.
Early on in the discussions, the automaker had discussed job cuts that some analysts forecast could run to more than 10,000. Opel and its sibling, British-based Vauxhall brands currently employ 48,000 workers, about half in Germany.
In recent weeks, GM has been flexing its muscle as its recovery appears to be taking hold. The automaker last month took to the airwaves to announce it was paying back a multi-billion dollar loan from the U.S. government, but that publicity stunt backfired when it turned out the maker simply used surplus cash from another portion of its bailout to pay down the loan.