Opel sale

Deutsche Welle: One of the things being discussed is whether German Economics Minister Karl-Theodor zu Guttenberg should be talking about possible insolvency instead of accepting a caretaker bid from the four auto-makers currently bidding to take on Opel. Is there a case for insolvency for Opel?

Irwin Collier: General Motors and the United States would like to see some money out of surrendering some control, or a good part of the control of Opel. GM is saying, "Look if you want to take Opel – it's not simply a question of we'll give it to you for nothing." They want to see something come back. The whole finance packaging has to do with paying GM and then covering the costs of doing business during a transition. They have all these payrolls to meet until Opel is up and running.

Again, assuming that economic conditions improve sometime in the future. Between now and then, Opel will be running losses and those have to be financed. GM would like to cash in some chips at least and so the figure of 1.5 billion euros ($2 billion) has been bandied around that would be split for these two purposes. You could say GM would probably want to get a third of that total. Otherwise the attitude would be, well if we are going into insolvency anyway, we can get this deal later. This is what I am presuming is going on in the minds of GM. So I wouldn't be surprised if Guttenberg's mention of insolvency is not merely a strategical ploy to improve the weak bargaining position of the Federal Government. There seem to be two-and-a-half serious offers about to be put on the table and, depending on what happens with the United States' parties, both the US government and General Motors, this might simply be an attempt to establish a stronger fall-back position, or the appearance of this . So it could simply be a good cop/bad cop negotiation, with Frau Merkel playing the good cop and Guttenberg playing the bad cop.

Guttenberg has talked about an 'ordered insolvency' and has denied claims by Roland Koch, the premier of the state of Hesse, that his remarks will dent consumer and investor confidence. Guttenberg says insolvency should at least be kept on the table and will possibly be a way to save taxpayers' money?

I do believe that this idea that there would be an ordered insolvency sounds too much like an ordered retreat in military terms. This is something that everyone dreams of but once everyone starts cutting and running, it‘s every man for himself. It is unlikely that it will be such an orderly procedure. The insolvency laws in Germany do not provide the same kind of protection during reorganization that you have under the Chapter 11 insolvency laws of the US. The thing that the Germans are most worried about right now is: If GM goes into Chapter 11, then this Opel decision will be completely taken out of their hands. So the government is being forced to come to some kind of decision, if for no other reason than to save their electoral hides for the election coming up in September.

As the youngest ever economics minister, Guttenberg is facing some criticism over his ministry's handling of the Opel bidding war. Is he to blame for the seemingly never-ending "wait and see" this is turning into?

I think he is in the unfortunate position of "damned if you do, damned if you don't." The deciding factor in all of this really is what will happen to the mother company. Opel's fate is very much dependent on which turns are taken in reorganizing GM. So the German politicians and the coalition partners realize that, come September, they are going to be judged on the basis of the very simple metric: How many jobs were they able to protect in Germany? There is some talk about how everybody has excess capacity and you know, if Opel takes the bullet, then the other auto-companies have a better chance of surviving. Such comments are being voiced by companies like Daimler or BMW or any competition in the European or German market. I am sure they would all shed a lot of crocodile tears for Opel going under at this point.

Canadian-Austrian car-maker Magna has been touted as the favorite bidder to get Berlin's support, having already garnered the public support of Koch. What are the reasons for this?

I think the strategy behind the Magna offer is being taken most seriously because it strikes two chords the German government wants to hear. One is to maintain as many of the Opel production sites as possible to be sustainable. By aiming the Opel brand at eastern Europe and Russia this would seem a reasonably plausible goal. While the drivers of the finest German engineered cars would look down their noses at such a car for the common person, for emerging economies, such a car is precisely what people would like to have. So I think Magna, by looking to the East as a matter of strategy and trying to reassure politicians that they are serious about keeping German jobs, has been effective. Whether this is possible or whether they are just postponing an inevitable death remains to be seen. There have been successful bail-outs in the past and whether or not Magna has a strategy for the very long run is uncertain but it could work for at least a couple of decades.

Against the backdrop of the current economic crisis how viable or sensible is it that the government is even considering taking on the responsibility of a bail-out or a bridging loan?

If you knew for a fact that the capacity of the German automobile industry was excessive in all the markets that it currently operates in, then it would be a great waste of taxpayers' money. But in terms of the financial situation throughout the world economy, in which a lot of innocent bystanders have been pulled down, the automobile industry being one of them - then no. To the extent that Opel's difficulties have everything to do with the very special circumstances we are in, you can make the case that, once Humpty Dumpty falls off the wall and is in many pieces, then all the King‘s horses and all the King's men cannot put him together again. Well the whole point is how to keep Humpty Dumpty on the wall!

Would you be prepared to speculate on what will come out of tonight's meeting?

As a politically interested economist, what is clear to me is that, whatever offer comes out, it had better beat what GM thinks they can get if they go into bankruptcy procedures and try to sell Opel at a later time. If GM thinks it can't beat the offer, then they are in. And for Berlin, if somebody comes in with an offer and jobs are protected until September, then the coalition partners will have one thing less to worry about when they go into elections. It is going to be very hard to put together a deal that is going to make everybody happy. It is a lot of political show that is going on right now. As Groucho Marx said, "Honesty is the most important virtue, and if you can fake it you got it made." Essentially, politicians in Germany have to show that they take this very seriously, and as long as they show that they are taking this very seriously by working into the small hours of the night negotiating, then if a deal is not struck well, well they tried really hard for 12 hours. Then it will be the blame game and they will point the finger either at the socially blind, profit-obsessed investors, who wanted to pay too little, or say that GM simply wanted too much from the German taxpayer. It‘s going o be everyone else's fault. I will be surprised if a good deal can be hammered out on such short order.

Interview: Tanya Wood

Editor: Susan Houlton