Germany on Wednesday rejected General Motors' request for aid from the federal government for its Opel unit, saying the U.S. automaker had enough funds to pull its subsidiary through.
The decision by Economy Minister Rainer Bruederle, came just days after Germany announced a plan to cut public spending and reduce the deficit, and denied GM of more than €1.1 billion ($1.2 billion) in loan guarantees.
But Chancellor Angela Merkel insisted that "the last word on the future of Opel naturally has not been spoken." She added that she would seek assistance from governors of states that host Opel sites in talks with them on Thursday.
A committee that examines aid requests from a fund for companies hit by the economic crisis failed to reach a decision on the case — putting the ruling in the hands of Bruederle, who turned it down.
"I am optimistic that the future of the subsidiary (Opel) can function without government aid," Bruederle said, adding that it was GM's responsibility to see to it that its subsidiary is swiftly restructured.
"I am convinced that GM has sufficient funds," he said.
Opel CEO Nick Reilly expressed disappointment at the decision, adding that "I don't particularly understand the reasons why."
He expressed hope that the four German states that host Opel plants could come up with between 25 and 50 percent of the rejected sum.
"I will do everything in the talks with the governors so that the employees who have committed themselves to the preservation of Opel get the possible help and support that is at our disposal," said Merkel.
Reilly noted that the states "have been very supportive of Opel and our application in the past."
Roland Koch, governor of Hesse, which is home to Opel's largest plant, in Ruesselsheim, expressed regret over Bruederle's decision and said he would carefully review any application for assistance.
Bruederle, a member of the pro-business Free Democrats — the junior partner in Merkel's center-right coalition — has long been skeptical about the merits of government aid to Opel.
The state government in Thuringia, which hosts Opel's Eisenach plant, last month sought to pressure the federal government by approving in principle to guarantee credit to the tune of €27.2 million ($33.8 million).
In March, former British Prime Minister Gordon Brown's government said Britain would give a 270 million pound ($390 million) loan guarantee to GM. Reilly said that Spain was expected to pledge a similar sum, adding that Poland and Austria may also join in, .
"It would end up leaving us with something like €400 million to find," Reilly said, adding that the were no plans for further job cuts or other "employee contributions."
The rejection puts GM in a tricky political position. It's committed to saving Opel and if the aid from the states didn't come through, it would be forced to use U.S. taxpayer dollars to restructure its European operations. That would be a tough sell in the U.S., where bailout-weary taxpayers and politicians want their money back.
Last November, GM abruptly canceled the planned sale of a majority in Opel to a consortium led by Canadian auto parts maker Magna International Inc., instead deciding to restructure the brands itself.
That decision irked Germany, which had pushed hard for the sale and had been prepared to offer financial support.
Fast-forward to May, when GM reported an $865 million first-quarter profit, its first positive quarter in three years. The profit came as global auto sales started to recover and despite a $506 million loss in Europe, the only place GM lost money.
GM sought European government aid for Opel and sister brand Vauxhall earlier this year as it presented a restructuring plan that foresees some 8,300 job cuts in Europe.
The two brands employ around 48,000 people in Europe, roughly half of them in Germany.
Opel's top employee representative was witheringly critical of Bruederle's decision.
"The economy minister is leaving the Opel employees out in the rain — against his better knowledge and against the interest of the German sites," Klaus Franz said in a statement.
Associated Press Writers Kirsten Grieshaber, Geir Moulson and Tom Krisher in Detroit contributed to this report.