General Motors said on Wednesday it was dropping its request for European aid to restructure its Opel unit, opting to fund the sweeping turnaround plan on its own after government talks bogged down.
The shift in strategy comes a week after Germany's federal government turned down Opel's request for Berlin to underwrite 1.1 billion euros ($1.4 billion) in loans.
GM dropped plans to spin off Opel late last year after rejecting a deal backed by Germany, and said the process of obtaining government aid for its European unit had proved too slow and complex in the months since.
Our application was put in more than six months ago, and we followed the process that the governments laid out and asked us to follow. We had no idea it would take this long, Opel Chief Executive Nick Reilly told reporters.
GM had previously insisted it needed European government to cut costs and fund new investment at Opel.
Opel needs a total of 3.3 billion euros of funding from GM, Reilly said.
GM, which was restructured through a U.S. government bailout a year ago, had previously committed 1.9 billion in funding for the restructuring.
We will obviously be planning the liquidity as best we can to minimize the amount of draw we have, Reilly said.
Opel has no plans to amend its restructuring plan to cut more costs, he said. Some of the costs GM expects to incur at Opel will not be booked until 2011 because implementation of the plan is taking longer than first expected, Reilly said.
The decision by GM to go it alone in funding the Opel restructuring raises the stakes for an initial public offering for GM shares expected as soon as this year.
GM is looking to reduce the U.S. government's nearly 61 percent ownership stake and has been weighing plans to raise funding from banks as well, advisers have said.
GM had originally asked European countries with Opel plants -- including Spain, Britain, Austria, Hungary and Poland -- to provide most of its funding needs but later promised to cover almost half of the sum.
'OPEL HAS A FUTURE'
German Economy Minister Rainer Bruederle's decision last week to reject Opel's financing plan came just after Berlin unveiled an 11.2 billion-euro government savings program.
Bruederle said he welcomed that GM was taking responsibility for funding its European arm, saying he hoped that Opel could now concentrate on making cars again.
Opel has a future if GM doesn't gamble it away, Bruederle said.
German Chancellor Angela Merkel last year made talks to save Opel and its 25,000 German jobs a priority in Berlin, brokering a deal to sell the carmaker to Canada's Magna.
In a move pushed by GM Chairman and Chief Executive Ed Whitacre, GM decided to keep Opel while pressing ahead with a request for state aid to return Opel to profitability by 2012.
But GM's turnaround from bankruptcy to profitability in just 12 months undermined the unit's efforts to win European government financing, analysts said.
Nothing has changed from the point of view of Opel. But GM's position has gotten somewhat better, Reilly said.
Excluding funds in escrow, GM had gross cash of $23.3 billion at the end of March compared with $14.2 billion in debt.
(Reporting by Maria Sheahan; Additional reporting by Jan Schwartz in Hamburg, Rene Wagner in Berlin and Kevin Krolicki in Detroit; Editing by Greg Mahlich, David Cowell and Richard Chang)