U.S. CRITICIZED FOR BREAKDOWN OF OPEL RESCUE TALKS

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 000644 STATE FOR EEB (NELSON),DRL/ILCSR AND EUR/CE (SCHROEDER) TREASURY FOR RATTNER, BLOOMS, MEYER, KOHLER, CARR AND OASIA NSC FOR JOVENIER LABOR FOR ILAB (BRUMFIELD) SIPDIS E.O. 12958: DECL: 05/27/2019 TAGS: ECON EFIN ETRD ELAB PGOV GM SUBJECT: U.S. CRITICIZED FOR BREAKDOWN OF OPEL RESCUE TALKS REF: A. BERLIN 0605 ¶B. BERLIN 0569 ¶C. BERLIN 0272 ¶D. BERLIN 0214 Classified By: ECON COUNSELOR INGRID KOLLIST FOR REASONS 1.4 (B) AND (D ). ¶1. (C) SUMMARY: May 27 negotiations in Berlin aimed at deciding a rescue strategy for General Motors (GM) subsidiary Opel ended without an agreement. The meeting did yield one noteworthy development: the number of remaining suitors for Opel appears to have narrowed from four to just two -- Fiat and Magna. Following the talks, German government officials criticized GM and the U.S. Treasury Department for the meeting's lack of results. Figures from the two main coalition partners, the Social Democratic Party (SPD) and the Christian Democratic Union (CDU) (and its Bavarian sister party the Christian Social Union (CSU)),are also pointing the finger at each other over handling of the rescue. Further discussions are to take place May 29 in Brussels. END SUMMARY. Chancellor Merkel ) Belated Invitation -------------- ¶2. (C) Following several attempts to identify a preferred bidder for Opel, the press reported on May 25 (Memorial Day in the United States) that Chancellor Merkel would host a series of meetings on May 27 with relevant cabinet ministers, Minister Presidents from the four states with an interest in Opel, the three bidders (Fiat, Magna and Ripplewood),as well as senior representatives of GM and the U.S. government. The Chancellery contacted the Embassy on the morning of May 26 to find out which U.S. official was attending, but seemed confused. Due to a lack of internal coordination, it appears that the German government had not notified anyone in the USG of the May 27 meetings, despite having already announced so in the press. Apparently realizing the oversight, senior German officials then contacted the Charge d'Affaires, as well as the NSC and Treasury Department to request more senior U.S. participation. (Note: The planned attendance of Treasury consultant Todd Snyder to the Berlin meetings was deemed by the Chancellery to be insufficient; Treasury agreed at short notice to participate via digital video conference (DVC) at a more senior level.) The Problems ) Treasury and the Trust -------------- ¶3. (C) The German government's concern about the level of U.S. representation at the May 27 meeting was widely reported by the German media. Economics Ministry and Opel contacts likewise expressed their disappointment to the Embassy. They said the Rothschild representative did not have the authority to take key decisions, and that officials participating in the DVC and the follow-up teleconference were non-committal. They expressed concern that the U.S. government was not sufficiently interested in GM's problems in Europe or in helping to find a solution. ¶4. (SBU) In referring to the meetings, Economics Minister zu Guttenberg commented to the press that it was a "scandalous night." "We do not yet have the assurances we need to be able to approve bridge financing," he added. The German government is "only willing to put money on the table if we do not have a high default risk... With the appropriate conduct, the American government and General Motors in Detroit can guarantee this," he said. Zu Guttenberg added that he expected more cooperation from the United States in the future since it was also in the U.S. interest to keep Opel from going under. Minister President Roland Koch of Hesse, where Opel's Ruesselsheim headquarters are located, echoed zu Guttenberg's criticism. Chancellor Merkel herself did not comment. ¶5. (C) The Opel contact confirmed to the Embassy that GM and the Opel Supervisory Board had created the necessary legal preconditions to transfer GM's European assets, including plants and patent access, to Opel for integration into an independently run Opel trust. It was too late, however, for the necessary contracts and legal certifications to take BERLIN 00000644 002 OF 003 place before the anticipated GM insolvency at the end of May. The contact said Treasury's approval for the German trust fund would be key. GM's Last-Minute Request -------------- ¶6. (C) Contacts at the Economics Ministry and Opel confirmed press reports that GM had presented a last-minute request for 300 million euros in addition to the 1.5 billion euros of bridge funding already envisaged by the government. The Opel contact said the company would need the funds by June 1 in order to pay bills due the following day. He was unable to explain how Opel could have overlooked this need when it originally presented its funding requirements to the German government. The government has now requested that those firms bidding for Opel bridge the 300 million euro gap; the outcome is still open. The Economics Ministry official was particularly dismayed by GM's new request, claiming the 1.5 billion euro figure had been derived from previous information provided by GM and Opel. Finance Minister Steinbrueck told the media he was "unpleasantly surprised" by the request, calling it an "impertinence." Two Bidders Left -------------- ¶7. (SBU) The May 27 meetings also failed to produce a preferred bidder. As predicted, Fiat (Italy),Ripplewood (United States) and Magna (Canada) submitted formal bids. There are media reports that Magna and Fiat will be submitting reworked bids for further consideration and possible due diligence, but Ripplewood has dropped out. A potential fourth bidder, Beijing Automotive Industry Corporation (BAIC),also appears to be out of the race. The Opel contact told us that Magna still appears to be the favorite, despite recent criticism that its financial concept left most of the risk with the taxpayer and none with Magna. Hans-Werner Sinn, President of the Munich-based economic research institute DIW, stated that all three official bids implied a cost for each Opel job that was as at least twice as high as the generally accepted rate. He called the bids "extortionate." An EU Commission spokesman announced a further meeting would take place on May 29 in Brussels at the invitation of the EU Commission. Economic ministers from all EU member states are to attend. The Coalition ) Disputes and Reconciliation -------------- ¶8. (C) The Fiat and Magna bids, and their respective plans for job cuts and plant closures have, have opened the door to political controversy. Chancellor Candidate and Foreign Minister Frank-Walther Steinmeier (SPD) has visited Opel plants on two occasions and made job retention a condition for his support of the Magna bid. He criticized Economics Minister zu Guttenberg (CSU) heavily for comments over the weekend that an Opel bankruptcy remained a viable option, as none of the submitted bids were realistic on a long-term basis. North Rhine-Westphalia (NRW) Minister President Juergen Ruettgers (CDU),has called Magna's proposed job cuts at the oldest Opel plant in Bochum, NRW "unacceptable". Following the May 27 discussions, however, many German politicians seemed to come together on one issue: criticism of the United States. COMMENT -------------- ¶9. (C) The upcoming national elections, scheduled for September 27, are clearly influencing the German government's behavior in the Opel case. While scoring political points at every opportunity, both major political parties are trying to balance saving Opel plants and jobs with getting the best deal from potential investors. Even before the May 27 discussions, the German public perceived that its government was making a good faith effort to save Opel, while the U.S. government was dragging its feet. The Germans' bungling of the U.S. invitation is not public, and the failure of the May 27 events to produce a clear way forward has hardened public perceptions that the United States is the problem. For her BERLIN 00000644 003 OF 003 part, Merkel is likely keeping a low profile until a deal emerges. END COMMENT. ¶10. (U) ConGen Frankfurt contributed to this cable. Koenig