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Reduced need for bailout cash will help GM heal the hurt of failed Opel sale

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Reduced need for bailout cash will help GM heal the hurt of failed Opel sale

NOVEMBER 8, 2009 12:00 CET

LONDON (Reuters) -- General Motors Co.'s decision to scrap the sale of Opel rests on the carmaker's calculation that the hole in its European unit's finances is not as deep as previously feared.

Governments should welcome the lower demands on taxpayers with open arms. But there is still some negotiating to be done to get everyone on board.

GM's CEO Fritz Henderson is due to present his plans for Opel this week. He has good reason to be bullish. GM's previous forecast that Opel needs $3.3 billion to keep going until 2011 appears to have been sharply revised. Some in the industry think the amount required could be nearer 60 percent of that figure -- some $2 billion.

Like other carmakers, European scrappage schemes and improved economic conditions have allowed Opel to significantly reduce its inventory. Cars that were sitting at dealers have been sold, putting much-needed cash back into the carmakers' accounts.

Moreover, GM itself is doing better than originally expected in the United States since emerging from bankruptcy in July. This has given it the confidence not only to scrap the sale of Opel to a consortium led by Magna International Inc., the Canadian auto parts maker, but also to repay the remaining 900 million euros on a bridge loan from the German government.

Earlier concerns about GM using U.S. taxpayer funds to prop up its units overseas seem to have eased. Henderson is now confident he can dip into GM's U.S. pocket to shore up Opel.

Creative financing

This can be achieved without wiring cash across the Atlantic. One possibility raised by Henderson is to waive some of the royalty payments Opel makes to GM. The U.S. parent could also use other accounting tricks and cross-subsidies within the GM empire to oil the wheels.

Even so, the GM team will still need substantial loans from European governments, including Germany, to help Opel through the next few years.

While the U.S. carmaker can to some degree play the various interested parties off against each other as they bid to preserve jobs with the offer of government loans, it needs to tread carefully.

German politicians and unions are particularly angry about the way GM has played its hand and will need lots of reassuring before the carmaker regains their trust.

GM must present a joined-up restructuring plan to have any credibility with Opel and GM workers in Germany, Britain, Spain and Belgium. It will also need to convince the European Commission that the plans make economic sense.

Opel isn't out of the tunnel yet, but the fact that the cost of getting there should be less than originally feared has to be good news all round.

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