Opel Not Going Russian After All

Late on November 3 (November 4 in Europe) the General Motors (GM) corporation decided to retain ownership of its heavily indebted German subsidiary Opel. The decision reverses GM’s September 10 tentative consent to sell a majority stake in Opel to a Kremlin-dominated consortium.

GM’s reversal became public on the final day of Chancellor Angela Merkel’s November 2-4 visit to the United States. Merkel learned about GM’s Opel decision only after completing her series of meetings with U.S. officials (Frankfurter Allgemeine Zeitung, Financial Times Deutschland, Sueddeutsche Zeitung, Handelsblatt, November 5, 6).

Merkel had strongly advocated the Russian deal in recent months. Under the pressure of approaching elections at that time, the German government had in turn pressured GM into a quick Russian solution, so as to save German jobs and gratify the Russo-German special relationship in the process. Russian Prime Minister Vladimir Putin was personally involved in arranging the “New Opel” deal, taking advantage of German subsidies; and the German government preferred that solution over other offers.

The “New Opel” consortium would have reduced GM to a 35 percent stake; Russia's state-controlled Sberbank was to take another 35 percent stake; the Canadian-Austrian parts supplier Magna, 20 percent; the Putin-dependent oligarch Oleg Deripaska's GAZ plant was to become the “industrial partner,” paying nothing into the venture, but offering its moribund car factory in Russia to produce Opel cars there; and Opel’s German work force would have taken 10 percent of the new venture’s shares.

Magna fronted for this consortium in the negotiations. That company, however, is not an independent actor in this process. Magna depends heavily on Kremlin support for its ambition to advance from parts-supplier to automobile-manufacturer in the protected Russian market. The German government had pledged 4.5 billion Euros in credit guarantees to support the Russian solution for Opel. The Opel rescue would also have translated into a GAZ-Deripaska rescue with German credit guarantees and GM technology.

The German government turned down bids for Opel from Italian FIAT and the U.S. Ripplewood (via its Belgium-based RHJ subsidiary). Berlin stipulated that only the Russian (“Magna”) solution, not the others, would be backed by the German government through credit guarantees (EDM, June 4, July 24, August 18, September 14).

GM-owned Opel plants in Britain, Belgium, and Spain (all smaller than the four-plant Opel in Germany) were also facing insolvency and possible closure. The governments in London, Brussels, and Madrid objected to Berlin’s financing of a unilateral rescue of Opel in Germany. Those governments called for a European solution or at least for a level playing field. In October, the European Commission determined that the German government’s credit guarantees for one bidder only, Magna, did not comply with E.U. competition policy. The Commission ruled that the German government must offer equal treatment to bidders for Opel. This move succeeded in re-opening the negotiating game (Die Presse, November 5).

The GM decision’s timing (whether pre-planned or circumstantial) gives German politicians a decent post-election interval to accept the change and negotiate with GM for the terms of Opel’s rescue. It gives Opel’s work force a chance to remain competitive thanks to GM technology, instead of adapting to lower-standard markets such as Russia’s. And it gives German politicians the chance to extricate from two traps of their own making.

First, politicians panicked when faced with Opel’s imminent insolvency and massive job losses at the start of the electoral campaign. With Opel taken into government receivership, the parties competed against each other to be seen “saving jobs” and finding a foreign partner –the Russian-dominated consortium in this case– to replace GM. The Russia-friendly foreign minister at that time, Frank-Walter Steinmeier, was the first to propose the Russian solution; but Merkel seized the lead from him on the issue. For short-term electoral considerations, the parties were ready to saddle the government with long-term financial risks and obligations.

Second, a Russian “rescue” for Opel was part of Berlin’s policy to welcome Russian state and oligarchic acquisitions of crisis-hit German enterprises, under the guise of anti-crisis measures. The government made political commitments regarding Russian takeovers of Opel, the Wadan shipyards, the Siemens subsidiary’s Infineon/Qinona software manufacturer, and other large-scale projects. The government and Merkel personally coordinated the agreements with the Kremlin, in highly publicized meetings during this German election-cum-recession year (EDM, July 4, August 18, September 10).

Now, however, with the election safely behind, Merkel successfully re-elected, and economic recovery in sight, GM’s decision offers Berlin a face-saving exit from a Russian takeover of Opel. The German government now has the possibility to support Opel’s recovery in return for acquiring a stake in the company, instead of Russia entering as stakeholder on German credits. For their part, the trade unions and Works Council could agree with GM on the same terms they have already conceded for the Magna-fronted Russian solution.