War of words over Opel as GM bankruptcy looms

A rift between Berlin and Washington threatened to torpedo Germany's goal of shielding Opel from the imminent bankruptcy of its parent General Motors , raising the risk of insolvency for the German carmaker.

German Foreign Minister Frank-Walter Steinmeier said on Thursday he would talk to U.S. Secretary of State Hillary Clinton later in the day, after German ministers emerged from 12 hours of talks having failed to strike a deal to provide Opel with temporary financing in the event of a GM bankruptcy.

(I will) urgently ask that attention is directed at Opel in the coming hours, he said.

The largest-ever bankruptcy for a U.S. industrial company may now be only days away after GM failed to win approval for a crucial bond-exchange proposal.

The battle for Opel has effectively narrowed to a race between carmaker Fiat and auto parts supplier Magna , but it remains unclear whether Opel will be drawn into GM's bankruptcy.

German ministers put the blame for the failed deal talks on GM and the U.S. Treasury.

We don't have the security yet that we need to commit to bridge financing today, Economy Minister Karl-Theodor zu Guttenberg said.

In an interview on ARD television, Guttenberg said: The behavior of those responsible at General Motors, not only in Detroit but also in Europe, unfortunately, certainly leaves much to be desired.

We have made demands on the U.S. Treasury and expect answers by Friday, and we will need these answers in order to agree a plan, he said.

Finance Minister Peer Steinbrueck spoke of surprises and disappointment with the U.S. negotiators, saying GM had shocked participants by announcing it needed 300 million euros ($415 million) more in short-term cash.

Germany was expecting more details from the U.S. by 8 a.m. EDT on Friday, the premier of German state Hesse, Roland Koch, said on Thursday morning.

OBAMA-MERKEL MEETING

The transatlantic strains over Opel come a week before U.S. President Barack Obama is due to visit Germany and meet with Chancellor Angela Merkel in Dresden.

The two have had an uneasy relationship since Obama came to office in January, with German officials complaining about their lack of access to his administration and mixed signals from his advisers.

The sense that Berlin is not a top priority for the new president will only be reinforced by the fact that Washington sent a low-level envoy to the Opel meeting.

The fate of Opel and its workforce is a hot political topic in Germany, where unemployment rose for the seventh month in a row, data showed on Thursday, and where the government is facing elections in September.

GM Europe head Carl-Peter Forster told a German magazine last week that Opel and GM Europe's Vauxhall operations in Britain had enough liquidity to last into the third quarter.

Participants in the talks are clinging on to hope that an agreement can be reached, albeit with concessions on both sides, sources taking part in the negotiations and close to GM said.

The U.S. side is counting on the extra leverage it can draw from the German government's expected reluctance to allow Opel to fail in an election year, the sources said.

GM Europe had no immediate comment on the outcome of the talks, nor on a statement by a GM labor panel that GM management was responsible for the failure of the Berlin talks.

Meanwhile Magna chairman Frank Stronach said his company had significantly boosted the amount of its own capital it was prepared to offer in its bid and that talks between his company and GM were to take place later on Thursday.

A source with knowledge of the negotiations said an offer by Magna to plug the 300 million euro financing gap itself had been rejected by the U.S. parties.

Even so, Magna's bid emerged as a favorite, with several German politicians speaking out in favor of it.

FIAT, MAGNA BATTLE

Italian carmaker Fiat and Canadian-Austrian auto parts supplier Magna both remained in the race to buy Opel, the ministers said, while Belgium-listed holding RHJ International SA was out of the running. China's Beijing Automotive Industry Corp was not present at the meeting, but the option for it to return with a more detailed offer remained open.

EU industry ministers will meet on Friday to discuss the Opel sale, a spokesman for the EU executive said. The EU is concerned that government aid to Opel could be tied to job guarantees in the aid-giving country, at the expense of Opel jobs elsewhere in the bloc.

Opel traces its roots in Germany back to the 19th century and employs about 25,000 staff in four plants there.

UK-based Vauxhall Motors, which employs 5,000 people, is being spun off from GM Europe along with Opel.

Fiat has presented an ambitious plan to fold Opel and other GM Europe brands Vauxhall and Saab into a transatlantic car empire that would also include new U.S. partner Chrysler.

Adding to fears that a GM filing could cause a domino effect among suppliers, U.S. parts maker Visteon Corp filed for Chapter 11 bankruptcy protection for its U.S. operations.

GM is aiming to reduce the number of its parts suppliers to about 1,100 from 1,500 over the next year and a half, purchasing chief Bo Andersson told Reuters.

Earlier, GM said an offer to exchange $27 billion in bond debt for a 10 percent stake in a reorganized company by a midnight deadline had fallen far short of the target.

GM's U.S. rival Chrysler, already in bankruptcy, is awaiting a court decision expected to clear the way for the Fiat deal.

($1=.7232 Euro)

(Additional reporting by Reuters bureaus across the world; Writing by Helen Massy-Beresford; Editing by Will Waterman)