Sell-Off of GM Europe Creates New Political Investment for Russia in Germany     Print Email
Monday, 01 June 2009

With both Chrysler and now GM acquiring buyers for their European operations, a score card is emerging about the winners and losers in Europe in the biggest-ever upheaval in the global car-making industry.

The biggest loser — besides GM and its backers, obviously — is Fiat’s CEO Sergio Marchionne. He succeeded in acquiring Chrysler: the deal was green-lighted today in a U.S. bankruptcy court. But almost simultaneously, he learned that the other prong of his strategy had failed with the decision to sell both Germany-based Opel and British-based Vauxhall. The vision of Marchionne had been to acquire cheaply another ex-GM industrial base and traditional market share to make Fiat into a world-class manufacturer.

He was blocked partly by the German government, where Chancellor Angela Merkel balked at his blueprint predicated on massive layoffs of German auto-workers (in an election-year in Germany). Another obstacle was GM’s reluctance to cede its Latin American interests, which had figured in the Italian plan to assemble a basic annual output of 6 million cars. That figure promised enough savings of scale to make it imaginable that Fiat, a comparatively small Italian manufacturer, could emerge as a major global player in new global market left open by the economic revolution that unseated GM (and the rest of Detroit) as the car capital of the post-war era. “Life goes on,” Marchionne commented, apparently referring to his initial vision of using Fiat small-car technology to transform Chrysler in a U.S. market bracing for higher gas prices.

The apparent “winner” is an unlikely tandem of dark horses: Magna Inc, a Canadian manufacturer of car parts, and a state-owned Russian bank, Sberbank. The two companies beat out Fiat for the deal after Berlin had closed the door to any German financial bail-out of Opel. The new owners have promised fresh investment, new markets in their own countries and, apparently most important, no job-cuts for Opel’s operations in Germany. In Moscow, Sberbank, the country’s largest savings bank, works closely in financial and industrial terms, with GAZ, the biggest seller of cars and light trucks in Russia’s burgeoning market for automobiles. GAZ is controlled by Russian metals tycoon Oleg Deripaska who has lost one of the greatest shares of his fortune due to the financial crisis. The Russian and Canadian companies emerged with the biggest shares in Opel’s prospective new ownership, 35% to Sberbank and 20% to Magna Inc., respectively.

Despite traditional mistrust, the German government is willing to use Russian capital to avoid the bankruptcy of one of its big employers. The decision is without precedent. But Opel employs 50,000 people in Europe, 26000 of which work in Germany. Opel’s survival seems crucial for Merkel four months ahead of the election. The fact that Sberbank is doing this deal in the first place is a clear hint that the move is political. Russia is facing an economic downturn that is quickly approaching rates of decline similar to those of the Great Depression. So, practically speaking, the Kremlin is using its currency reserves to help Deripaska, a private-sector oligarch, wedge Opel away from its old ties with the U.S. and away from potential new Western partners in Europe.

Magna has never built cars, and GAZ’s main car product, the Volge, has been plagued with failures and ridicule. Russia’s rationale for the purchase is the potential for Opel to help develop the vehicles turned out by GAZ. In market terms, that seems to be a long shot since Russia has never developed a civilian product (other than launch rockets) that was a successful export. Moreover, cash-strapped Russia has denied that it will inject fresh capital into Opel. Instead, the acquisition of Opel seems to reflect Moscow’s sensitivity to the political interests of Berlin and Chancellor Merkel as she faces a tough electoral campaign amid growing concern among German voters about a deepening economic crisis in their country, when elections are due. When German voters go to the polls, there will have been no real challenge about the truth of Russian pledges to preserve Opel’s factories and jobs – and Merkel will owe Moscow a debt of political gratitude. However, the decision of which GM plants to close in Europe will not be released until september, presumably after the elections.

Seen in that light, the Opel deal may be another milestone in the trend toward increasing German economic ties (and dependence) on Russia. Already, Gazprom has a near-monopoly over supplies of natural gas to German factories and homes. Now Russian companies with close ties to the Kremlin may be trying to expand Russia’s influence by finding niches in Germany’s industrial tissue. German manufacturing has long been considered untouchable for foreigners, but Siemens recently teamed up with a state-owned company in Russia to manufacturer, build and sell nuclear civil power reactors.

Meanwhile the “German-Russian solution” for Opel has done nothing to advance the consolidation of the car industry in Europe that most observers see as inevitable. The deal with Fiat would have gone in that direction, but at the cost of job losses in the immediate future. As the U.S. companies downsize in hopes of fitting into a new car market once there is an economic recovery, European car manufacturers seem determined to ignore the Fiat vision: a smaller but united industry for an emerging world vehicle market that prizes new technologies that can reduce carbon emissions.

The bail-out for Opel (and for Merkel) underscores increasing ties between Russia and Germany and illustrates the increasing uses that Russia sees for its Kremlin-linked oligarchs in the future, according to Stratfor, an online intelligence journal.