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Cablegate: Gm Decision Not to Sell Opel Greeted by Shock And

VZCZCXRO9510
RR RUEHAG RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHRL #1395/01 3090620
ZNY CCCCC ZZH
R 050620Z NOV 09
FM AMEMBASSY BERLIN
TO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHFT/AMCONSUL FRANKFURT 8317
RUEHAG/AMCONSUL HAMBURG 0339
RUEHMZ/AMCONSUL MUNICH 2211
RUEHC/SECSTATE WASHDC 5681
RHEHNSC/NSC WASHINGTON DC
INFO RUEHMO/AMEMBASSY MOSCOW 2086

C O N F I D E N T I A L SECTION 01 OF 02 BERLIN 001395

SIPDIS

E.O. 12958: DECL: 11/04/2019
TAGS: ETRD ECON ELAB PREL RU GM
SUBJECT: GM DECISION NOT TO SELL OPEL GREETED BY SHOCK AND
ANGER IN GERMANY

REF: A. BERLIN 01131
B. BERLIN 01093
C. BERLIN 00390
D. BERLIN 00272
E. BERLIN 00214

BERLIN 00001395 001.2 OF 002


Classified By: ECONMIN Robert A. Pollard for reasons 1.4 (b,d).

1. (C) Summary: Just hours after Chancellor Merkel's historic
November 3 address to a joint session of Congress, General
Motors (GM) canceled its sale of Opel to Canadian auto parts
manufacturer Magna. The decision, which followed repeated
assurances from GM that it was a done deal, came as a
complete shock in Germany and dominated media coverage
throughout the day. Merkel herself was reportedly highly
upset over GM's flip flop. Ulrich Wilhelm, the Chancellor's
spokesman on Opel said the German government "regretted" the
decision, and reminded GM that it must now repay Berlin's 1.5
billion bridge loan to Opel by the end of the month, while
FDP Economics Minister Rainer Bruederle described GM's action
as "totally unacceptable." The cabinet was expected to
discuss the GM move on November 4. Opel's labor unions, which
had strongly backed the Magna sale because of its promise to
save jobs and keep plants open, announced that workers would
withdraw all concessions made under the terms of the Magna
deal and sta
rt a general strike at Opel plants on November 5. While
anger is widespread, there are already some voices outside
the government advocating acceptance of GM's announcement as
the only viable alternative to a total collapse of Opel. End
Summary.


Germany's Political Establishment Reacts with Anger
--------------------------------------------- ------

2. (C) Opinion across the political spectrum has been
uniformly negative. FDP Economics Minister Rainer Bruederle
blasted GM's behavior as "totally unacceptable." Juergen
Ruettgers, Minister President of Nordrhein Westfallen (CDU),
asserted that GM's decision showed "the ugly face of turbo
capitalism."
The leadership of the FDP, whose opposition to government
intervention in the Opel deal is well known, joined in the
condemnation of GM. A high-level source indicated that
Chancellor Merkel is furious over the GM move and refuses to
talk to GM's leadership. It is likely to be only a matter of
time before critics will call Merkel herself into account for
her strong support of the
now collapsed Magna deal. The Cabinet has been called into
session and is likely to confirm the withdrawal of all
financial support and a demand that GM repay the government's
1.5 billion Euro bridge loan by the end of the month.

3. (C) Jochen Homann, the Economic Ministry State Secretary
heading the German interagency working group on Opel, told
EMIN on November 4 that there was no possibility of further
German financial assistance to Opel in the foreseeable
future. The failure of the Magna deal and GM's reputation as
"an unreliable partner" would likewise complicate
negotiations with other governments seeking to preserve Opel
jobs and factories. Although no one directly blamed the USG,
the Germans are still having trouble understanding how GM
could act independently of Washington. Dr. Schubert, one of
Homann's lieutenants, complained to the Embassy that "if the
U.S. Government had GM under better control, this would not
have happened." It is now up to GM, he said, to submit a new
restructuring and financing plan, as their previous one is
out of date. Schubert was adamant that this time "there will
be no special treatment for Opel" and GM's plan would have to
go through normal channels.


Matched by Threats from Organized Labor
---------------------------------------

4. (SBU) Klaus Franz, the head of Opel's Works Council,
announced on November 4 that Opel's 25,000 employees in
Germany will begin an indefinite strike on November 5 to
protest the GM decision. Franz called on all 55,000 Opel
workers across Europe to join in. Accusing GM of
"blackmailing" governments and workers in Europe to sign on
to its "unacceptable" restructuring Plan, he also revoked
prior labor commitments to contribute 388 million dollars in
foregone benefits to the Magna sale.

BERLIN 00001395 002.2 OF 002

5. (C) Oliver Burkhardt, head of the Metal Workers in NRW,
likewise condemned the decision as "bold and unfriendly," not
only to Opel employees, but to the German government.
However, Burkhardt conceded that he is waiting to see a long
term GM plan for Opel that relies on more than cost-cutting
and down-sizing. In contrast to Klaus Franz, Burkhardt
contended that non-German labor unions were "elated" over the
failure of the Magna deal (which was tilted against workers
in other countries) and doubted they would heed Franz's
strike call. He also predicted that the strikes in Germany
will be short-term and largely symbolic rather than actual
closures, adding "we are not going to close the door on a
solution with GM." Similarly, Fred Irwin - Citigroup's
country manager in Germany and the Chair of the Opel Trust
that oversaw the Magna negotiations - predicted that unions
will eventually reconcile with GM once they realize there is
no other choice.


While Despair Permeates Opel Executives
---------------------------------------

6. (C) Opel managers such as Berlin Representative Uwe
Berlinghoff, who almost uniformly favored the Magna contract,
were also "taken completely by surprise" by the GM
announcement. Berlinghoff now expects GM to resurrect its
pre-Magna restructuring plans, including closure of plants at
Bochum (and Antwerp, Belgium) and the sale or closure of the
Eisenach plant. Berlinghoff also expected the German
government to cancel the expected 4.5 billion dollar loan
guarantee package, as "GM has demonstrated its lack of
credibility with German politicians."


Research and Development and IPR Could be Key
---------------------------------------------

7. (C) German auto industry insiders have privately
identified compelling reasons why GM cancelled the Magna
deal. Among these are the importance of the GM/Opel Research
and Development facility in Ruesselsheim and its patents to
GM's development of small efficient cars in Europe, the U.S.
and elsewhere. GM was also reportedly skeptical that it
could adequately protect crucial IPR from Russian
exploitation because of the Sberbank/Gaz partnership with
Magna. Moreover, Magna had oversold its ability to penetrate
the Russian market. GM's announcement stressed its plans to
build on its already significant business in Russia while
retaining Opel and to work closely with Gaz without a Magna
partnership.


But Auto Leader Welcomes the Move
---------------------------------

8. (C) Dr. Norbert Reithofer, the CEO of BMW, told the
Ambassador on November 4 that GM's move would be welcomed by
the German auto industry. Reithofer was adamant that there
was no way BMW and the other German auto manufacturers would
have purchased auto parts from Magna once it became a direct
competitor as an auto manufacturer. In Reithofer's view,
Magna made the Opel purchase proposal in a moment of panic at
the height of the economic crisis, but now that a recovery is
in the offing, probably is not unhappy to see it dissolve.


Comment
-------

9. (C) Despite the considerable German ire aimed at GM, much
of it is aimed at GM's handling of Opel (in particular the
timing of the November 3 announcement), rather than its
business rationale for retaining its German subsidiary.
Thoughtful German opinion leaders, including former Economics
Minister zu Guttenberg conservatives in the German business
community, were equally critical of Berlin's strong arm
lobbying on behalf of Magna. An Opel Trust Board Member and
FDP politician Dirk Pfeil has already issued a statement
urging Berlin to provide 3 billion Euro in state aid to keep
GM afloat. Like it or not, the German governments will need
to seek an accommodation with GM to keep Opel alive.

MURPHY

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