Global Economics

Opel and the Kremlin: Risks Ahead for Germany?


Russians soon will own 35% of Opel, and the Kremlin covets the German carmaker's knowhow. An eastward shift could put German auto jobs at risk

Is Opel about to turn Russian? That may seem farfetched, but it is the question that some commentators in Germany are asking following a deal struck on Friday that will see Russian bank Sberbank (SBER.RTS) acquiring a 35 percent minority stake in the carmaker—the number of shares equal to those being kept by General Motors and significantly more than the 20 percent of shares to be bought by Magna (MGA), the Austrian-Canadian auto parts company that had been promoted as the best bet to rescue Opel.

In Moscow, Prime Minister Vladimir Putin says he would like to see the German carmaker play a future role in developing his own country's automobile industry. "The Russian government has its strategy of developing the car industry and the deal we are discussing must be embedded within the strategy for automobile manufacturing," Putin said at a meeting with officials from Sberbank and Magna on Monday, the Interfax news reported.

Roughly translated: The Kremlin would like to see Opel's know-how pumped into ailing carmaker Gaz (GAZA.RTS), which has suffered immensely as Russian automobile buyers turn to nicer and more technologically advanced models from the West. In addition to his country's European dominance in the gas and oil sector, Putin has also said he would like to build up Russia's automobile, aviation and defense industries. The Opel deal fits nicely with that strategy.

As part of Friday's deal with Sberbank, Opel is expected to cooperate as an "industrial partner" with debt-laden Gaz, which is in desperate need of modernization. Like Sberbank, which is 60 percent owned by the Russian central bank and is often considered the long arm of the Kremlin, carmaker Gaz also has deep ties to the government in Moscow. The carmaker, which produces the Volga brand, belongs to oligarch Oleg Deripaska, a 41-year-old Putin loyalist. For a long time, he was Russia's richest man, but Forbes magazine estimates he lost as much as $25 billion as a result of the financial crisis. He still has considerable influence, but in order to keep moribund carmaker Gaz afloat, he has had to take billions in loans from the government and turn over his shares in the company as collateral on those credit guarantees. For its part, Sberbank is Gaz's single largest creditor.

Putin said his government wasn't playing a direct role in the deal to rescue Opel, but "welcomed the role of Sberbank in this sphere." On Sunday, Sberbank chief German Gref, a former Russian economics minister and close confidant of Putin, said his company would "never" have been capable of closing a contract like that "without the government's support."

"Highly Advanced Technical Production"

Gref has said he wants his company to do its part to help restructure Russia's ossified automobile industry. He said his company was acquiring "highly advanced technical production" at an "unprecedentedly low price."

In Russia, Opel is already a popular brand, and sales could improve if the company is given access to Gaz's broad dealership network. Opel currently has a 3 percent market share in Russia and its new owners would like to see that share grow to 20 percent. Success there, of course, is contingent on a recovery of the Russian automobile market. It's predicted it will become Europe's largest single market for car sales, but it has also suffered radically from the economic crisis, with 44 percent fewer cars sold between January and April than a year ago, according to financial wire service Dow Jones. The Russian economy is also expected to decline by 6.5 percent this year according to the International Monetary Fund.

But the Russians, too, appear to be banking on a turnaround. On Monday, Gaz said it could be capable of manufacturing Opel models within six to nine months at its Nizhny Novgorod-based plant, with a capacity to produce 180,000 cars a year. That development could come as good news for Gaz workers. According to press reports, the company has debts of around €1 billion, one-quarter of the Gaz's 120,000 workers have just been laid off and another 30,000 jobs are in jeopardy in a city whose economy is tied to Gaz's fortunes.

Mostly, Germans have glossed over the new Russian ownership of Opel with little criticism. Switzerland's Neue Zürcher Zeitung even noted that as a sign of the "special relationship" between the two countries. "The Germans intuitively preferred the Russian-Canadian offer over the Italian offer," the paper wrote.

But there has been some criticism in Germany. Germany's influential Süddeutsche Zeitung writes in an editorial that the government in Moscow "will do everything it can, to save as many jobs as it can at Gaz with Opel's help—not least of which to keep the city of Nizhny Novgorod alive."

Will that come at the expense of jobs back in Germany and Western Europe? Despite pledges by the government in Berlin to save as many jobs as possible under the deal, the Süddeutsche notes that an eastward shift in production and jobs may be inevitable in the medium-term future.

"Those who believe that the Russians' investment in Opel will save German jobs in the longterm ought to reflect (on Gaz's desire to manufacture Opel models in Russia)," Süddeutsche writes. There's a reason the consortium didn't provide any guarantees for jobs at Germany's Opel plants. And the fact of the matter is that even though the company's employees will also be part owners of Opel in the future, they will not be able to prevent their jobs from being outsourced to the east."

"What is being pitched as a breakthrough in Berlin will only help Opel in Germany for a few years," the editorial states. "As long as there are no factories in Russia, the company will still be able to export cars from its Rüsselsheim and Bochum plants in Germany, but soon the going could get tougher and, perhaps, the government in Berlin will be asking itself in 2015 why the country spent millions just to save an automobile brand."

After all, Russia's investment wasn't a charity case. "This deal is, of course, being undertaken in the interests of our country," Sberbank CEO Gref told the Russian TV station Vesti-24 earlier this week according to Dow Jones.

dsl—with wire reports


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