General Motors Screws the President

November 6, 2009 (LPAC)—On Tuesday, the Board of Directors of General Motors announced that it was pulling the plug on the takeover plan made by Canadian supplier Magna and the Russian Sberbank, and had decided to retain its European Opel division. The decision was reportedly made without the knowledge or involvement of President Obama, despite the fact that the U.S. owns 60% of General Motors and has bailed it out to the tune of at least $50 billion.

The decision was announced hours after German Chancellor Angela Merkel has addressed the U.S. Congress—the first German Chancellor to do so since 1957—and had met personally with President Obama. On Tuesday, a U.S. Treasury spokeswoman, Meg Reilly, said in an emailed statement: "The administration was not involved with this decision, which was made by GM's Board of Directors." In fact, according to the Detroit News, GM's John Smith said GM informed the Obama administration's auto czar, Ron Bloom, and the U.S. Ambassador to Germany, Phil Murphy, along with European officials about the board's decision. In a telephone conversation with Merkel late on Wednesday, Obama said he had not been involved in the surprise decision by the GM board, which has angered the German government.

The official response of the German government is that it regrets the decision by the board of GM to retain Opel and that it expects GM to repay 1.5 billion euros, or $2.2 billion, in bridge financing provided by German state banks to keep Opel afloat while it restructured. A spokesman said: "The Chancellor made clear that the German government would urge General Motors to present a new plan as quickly as possible and to repay bridge financing by the end of November (it is due on November 30)." The spokesman said: "Chancellor Merkel and President Obama agreed to continue to coordinate on the matter."

Roland Koch, the premier of the German state of Hesse, where Opel has its headquarters in Ruesselsheim, said: "We are personally and deeply disturbed and irritated by what GM did. GM came to us for assistance. I think people on the board forgot that."

GM CEO Fritz Henderson said Tuesday in Detroit, that he would present a plan to revamp the automaker to European governments soon. John Smith, GM's group vice president for corporate planning and alliances, said GM's own plan could involve cuts of up to 10,000 jobs or about 20% of the work force. However, German workers believe that GM will make even deeper cuts than Magna would have.

If the Opel plant in Bochum is shut down, it could also deal major political blow to Merkel herself. Merkel's ally, North Rhine-Westphalia state premier Jurgen Ruttgers, needs union-labor votes to win reelection next May. If he were defeated as a result of GM's action, it could mean that Merkel's center-right alliance would lose its majority in Germany's upper house of parliament.

Russian Prime Minister Vladimir Putin said the about-face after months of talks would leave a bitter taste in some European mouths. "We will have to take into account this style of dealing with partners in the future, though this scornful approach toward partners mainly affects the Europeans, not us," Putin told a cabinet meeting in Moscow. "GM did not warn anyone, did not speak to anyone ... despite all the agreements reached and documents signed. Well, I think it is a good lesson."

In Germany itself, Opel workers held demonstrations on Thursday. Organizers estimated that 10,000 workers atended the Ruesselsheim rally, while police put the figure at 6,000. Workers at Opel's headquarters in Ruesselsheim carried a black coffin with the GM and Opel logos: others held placards such as "GM get lost" and "Hands off Opel."

While stabbing the President of the United States in the back and damaging U.S. relations with an important ally, Germany, CEO Henderson nonetheless maintained that GM could use U.S. government bailout money to restructure GM's European Opel unit, claiming that whereas the first loan agreement with the U.S. last Dec. prohibited spending outside the U.S., aid granted in August after GM left bankruptcy protection allows spending in other countries.

Support for the GM move came from the British Business Secretary Peter Mandelson, who said that the decision would benefit European taxpayers, especially in Britain, Germany, and Spain, and that workers at GM's Vauxhall unit in Britain would prefer to keep the same management. Vauxhall employs about 5,500 British workers.