GM Europe needs loans or else: Henderson

THE European operations of General Motors could become insolvent before June 30 if governments do not advance emergency loans, according to GM chief operating officer Fritz Henderson.

And in Japan, Toyota has triggered a run on the government by asking for a ¥200 billion ($A3.1 billion) loan for its finance subsidiary.

In a stark reality check for European governments, Mr Henderson said the market had deteriorated so quickly in Europe that GM would have no time to sell assets – like a stake in Opel – to raise the required cash.

Even if the loans were made, Opel would still have to slash production and shut as many as three factories to survive.

“We need $US1.2 billion ($A1.86 billion) annually in labour cost savings,” he said at a joint press conference with GM Europe chief Carl-Peter Forster.

“But it is certain we have to restructure. That’s the basis of our business plan.” The business plan, which has been distributed to three national governments and four German state governments where Opel has factories, indicates Opel has too much capacity.

“We have about 30 per cent overcapacity, which equates to about three plants,” Mr Henderson said.

He said as many as 300,000 jobs could be affected by the Opel restructuring, when the effect on the supplier industry and distribution network are factored in.

Left: GM's Fritz Henderson.



“If Opel is allowed to falter, most of these jobs will go. But we have a plan that is sound and measurable, although some of the restructuring measures will be painful,” Mr Henderson said.

GM and Opel have approached the Governments in Germany, Spain and the UK, as well as the various German states in their bid to find emergency loans.

Ordinarily, Opel would be financed by its parent company GM, but the US giant is not allowed to use any of funds advanced by the US Government to help its offshore operations, leaving Opel, Saab and GM Holden to fend for themselves.

The Opel board of directors is believed to have decided Opel would be better off if it became at least partly detached from GM.

However, Mr Henderson scotched that plan. He said the lengthy negotiations and due-diligence checks that any new investor would require would take too long.

No talks with potential investors had even been started, he said.

However, Governments may end up with a stake or stakes in Opel. Any Government extending loans or loan guarantees would receive an equity stake in Opel, under the plan submitted to the various Governments.

Mr Forster said in a GM press release that the emergency at Opel had been created by the exceptionally weak economic situation that had seriously eroded customer demand for vehicles and shutout the availability of credit for financing operations.

“We’re moving to restructure our business with as minimal an impact on jobs as possible, but the reality is we are in an exceptional economic situation and the issue of plant closings must be considered,” Mr Forster said.

“It should be made clear that we need all three parts of the restructuring plan to be viable – the structural cost reductions, government support and GM support.

“Anything short of this will not result in a viable operation.” Mr Forster said GM remained open to discussions partnerships, equity positions or other alignments that would strengthen the relative position of Opel/GM.

“Opel remains an integral and important part of GM’s global operations and will continue as such in future,” he said.

Meanwhile, the Japanese car industry was shocked when Toyota’s finance arm asked the Japanese Government for ¥200 billion ($A3.1 billion) in loans to help support its lending business in the US.

The request sparked a rash of “me too” statements from Honda, Nissan and Mazda suggesting they might seek loan assistance, too.

The Toyota request was a shock because the company runs a truly conservative balance sheet loaded with cash and marketable securities.

At the end of December, the Toyota balance sheet contained cash and marketable securities valued at ¥4706 billion ($A73.6 billion). That included $A27 billion in cash and marketable securities totaling $A46.5 billion.

Toyota Financial services approached the Government-owned Japan Bank for International Cooperation (JBIC) for the loan only weeks after the Japanese Government relaxed the JBIC’s lending criteria.

The bank had originally been created to invest in projects in developing countries. However, in December the government decided as an emergency measure to allow the JBIC to lend to Japanese companies operating in developed countries.

The decision to change the lending rules reflected the increasing difficulty of raising funds in distressed markets like the US.

“Due to current economic conditions, we are considering using public funds in addition to our usual sources of funding,” a Honda spokeswoman told Agence France Presse.

A Nissan spokeswoman said: “We’re not in a situation where we desperately need funds, but as the opportunity has presented itself, we believe we should make the best use of whatever funding is available.” A Mitsubishi spokesman said the company was not considering borrowing government funds due to a lack of clarity over the lending scheme.

Read more:

Holden idles factory as GM loses $49 billion

GM Holden watches Saab and Hummer situations unfold