Streetwise Professor

November 4, 2009

Putin Needs a Waaaaahmbulance!

Filed under: Economics,Financial crisis,Politics,Russia — The Professor @ 10:33 pm

GM has finally come to its senses and rejected the sale of Opel to Canadian autoparts maker Magna–and its Russian partner (initially Sberbank, but eventually Avtogaz Gaz).   GM initially agreed to the deal when faced with an existential crisis in the early part of this year; its “choice” of partner was largely driven by Germany’s conditioning of financial support for the deal on GM selling to the Canadian-Russian tandem.   GM got cold feet in the summer, as its bankruptcy/government takeover and cash-for-clunkers gave it a financial respite.   It was explicitly reluctant to get involved in a deal that could lead to the loss of its technology and intellectual property to a potential Russian competitor; no doubt it was also reluctant (though it did not say so publicly) at the prospect of getting enmeshed (as a minority partner) in the financial and business machinations of Oleg Deripaska, victor in the bloody aluminum wars, unscrupulous businessman, and arguably the world’s largest insolvent.  Moreover, recent statements by the EC called into question Germany’s ability to condition its subsidies to favor factories located in Germany at the expense of others in Belgium, Spain, and the UK.

The decision of GM’s board to maintain control of Opel touched off howls of protest from Germany–and Vladimir Putin.   Putin was outraged that GM would act in such a high-handed way.   A deal is a deal, after all–if it works in Russia’s favor.   Putin made heavy hints that Russia would explore legal options.

Cry. Me. A. River.

Actually, the irony here is too rich for words.   Let’s remember the narrative that justified the rough treatment of Shell a few years ago.   When Russia was on its knees, the story goes, opportunistic oil companies exploited Russia’s economic desperation by forcing it to enter into humiliating production sharing agreements that were tilted heavily against the Russians.   In the mid-2000s, the worm had turned, oil prices had risen dramatically, Russia was no longer on its knees, and it redressed the injustices inflicted on it during its time of troubles by forcing Shell (through regulatory thuggery) to tear up the PSAs and sell its interest in Sakhalin at Putin’s price.

Fast forward to 2009.  GM is on its knees.  Russia–with the connivance of a German government facing re-election–takes advantage of the company’s distress to enter into an agreement that it would never countenance under other circumstances.  Months later, its hour of desperation past, GM reconsiders the deal and tells Putin to pound sand.

Tell us how it feels, Vladimir Vladimirovich.

But note one crucial difference: unlike Shell and Russia, GM had not signed on the dotted line.  It backed out before it had entered into a binding legal obligation.

An interesting lesson in corporate governance that Putin might well heed.  A board of directors overrules its management.

Truth be told, there are no truly sympathetic figures in this saga.  A company (GM) that wasted tens of billions of dollars in capital over decades.  Its overprotected, overpaid, unionized labor force.  A government (Germany’s) attempting to buy votes by subsidizing an industry plagued by overcapacity that should shrink, and doing so in a beggar-thy-neighbor fashion, all the while providing assistance to an opportunistic, corrupt Russian government and business that has co-opted wide swathes of the German political and economic elite.

This is an embarrassment to Germany’s Merkel, but one which hopefully will get her to reconsider her rather mystifying obsequiousness towards Putin and Russia.  But it is a particular embarrassment to Putin, for it is a very public demonstration that only the desperate (or the deluded or the corrupted) are willing to respond favorably to his blandishments.

Some would take this as an opportunity to contemplate what changes would make his country attractive to anyone but those with no other option.  But this surely will not happen in Putin’s case.  Instead, we can expect a litany of whines about how the Europeans and Americans are making Russia a pariah.

Actually, VV, no help needed: you’re doing a bang up job of that all by your lonesome.

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10 Comments »

  1. I had a funny thought about the intellectual property issue. Actually, what better place to give up intellectual property than Russia? Nobody could squander it into oblivion and uselessness better than they could! It’s the Chinese that we have to worry about on this issue.

    But really, this whole deal was strange from the beginning. Magna seems quite determined to grow beyond their traditionally successful position as a car parts manufacturer by entering into the car manufacturing business. And for some reason, they want to do this in Russia. They failed in their first attempt with the Volga Ciber car (granted, it came out right when the crisis hit, but success was doubtful despite this) and now they think they can reinvent Opel. Also, the deck was stacked with Germany’s intervention to save all their factory workers, so any flexibility to maneuver the business toward lower costs and nimbleness was substantially reduced before they even started.

    That doesn’t mean I’m thanking God that Opel will remain in the tender arms of wonderful GM, though. GM has blown it over and over again and still doesn’t get it, even after bankruptcy. However, it is in better hands than if it got sold off. They’ll have to do the exact cost reduction/restructuring that Germany was trying to avoid, though, so the Germans are as big a loser as the Russians are in this case.

    As for Merkel’s obsequiousness, I don’t get it either. Germany’s positions on many issues have disappointed me over and over. As for Putin, I can’t add to what you already said. A spade is a spade.

    Comment by Howard Roark — November 5, 2009 @ 1:00 am

  2. “This is an embarrassment to Germany’s Merkel, but one which hopefully will get her to reconsider her rather mystifying obsequiousness towards Putin and Russia.”

    Why would it? Did Putin do anything to harm relations with Germany here? Nope. In his memoirs “Tokyo, Moscow, London”, von Dirksen noted the vital role trade with Russia played in sustaining German industrial employment during the Great Depression. As it was in the beginning, is now, and ever shall be. Russia remains a vital market for German industry, so maintaining good relations with the Russian government is strongly in the interests of the German government. I expect the new German foreign minister will be just as assiduous in cultivating German-Russian relations as the previous one, however much that sticks in your craw.

    Comment by rkka — November 5, 2009 @ 6:05 am

  3. I think you just need to look to Germany’s cozying up to the Russian’s for natgas. This simply STINKS of quid pro quo (notice VV’s recent fascination with the Russian auto industry). rkka is spot on, Germany has sold (or is selling?) its soul to the devil.

    Comment by Jack — November 5, 2009 @ 1:42 pm

  4. Looks like you’ll have to add the Swedish and Finnish governments to your sh*t list, SWP. They’ve just approved the environmental aspects of Nord Stream!

    http://cn.reuters.com/article/editorsPicksNews/idCNTRE5A44FK20091105

    Comment by rkka — November 5, 2009 @ 7:38 pm

  5. rkka-My sh*t list is infinitely scaleable.

    The ProfessorComment by The Professor — November 5, 2009 @ 8:12 pm

  6. Hmmm, the topic is Russia’s humiliating failure to close the Opel deal and pathetic crybaby antics thereafter, and RKKA wants to talk about Finland and Sweden. Gosh, wonder why that might be . . .

    So lame. So very, very lame. Between Russia and her “defendeers” it’s a festival of lameness. Soviet Union, all over again. Country bound for scrapheap. And it seems like they deserve it.

    Comment by La Russophobe — November 8, 2009 @ 8:50 am

  7. But if RKKQA would like to talk about gas, chew on this:

    Russian gas production fell a stunning 17% in the first three quarters of this year, and gas exports plunged even further, a whopping 21%. Naturally, with sales in freefall, the price and the revenue Russia received from sales of natural gas also dropped through the floor (to the sickening tune of 50%). Oil production and exports were up slightly, but nowhere near enough to even remotely offset the catastrophic collapse of the gas market. The Russian stock market is down over 11% in the past two weeks as these horrifying revelations became known.

    http://larussophobe.wordpress.com/2009/11/04/editorial-flatulent-russia/

    Is it Russia’s plan with this pipeline to flood Europe with gas and drive the price even lower, and all its gas firms into bankruptcy? Good thinkging, Mr. Putin!

    Comment by La Russophobe — November 8, 2009 @ 11:56 am

  8. “Russian gas production fell a stunning 17% in the first three quarters of this year, and gas exports plunged even further, a whopping 21%.”

    Um, Phoby? There’s been a global financial collapse, haven’t you heard? Demand is down, so less gas needs to be pumped. Don’t worry, its still tere, safe underground, waiting for demand to recover.

    Good thing GAZPROM delayed investments in developing new gas fields, huh?

    Comment by rkka — November 8, 2009 @ 5:53 pm

  9. “Good thing GAZPROM delayed investments in developing new gas fields, huh?”

    Um, doofus? Do you read what you yourself write? You just said it was a good thing Russia was developing a new pipeline. What’s it going to fill that with, Sovyetskoye? Damn, you’re illiterate.

    What if demand doesn’t recover before Russia goes bankrupt, you baboon?? A recent gas summit predicted it won’t, and that Russia is doomed. You ought to read more. If you can read.

    Comment by La Russophobe — November 9, 2009 @ 12:54 pm

  10. “Good thing GAZPROM delayed investments in developing new gas fields, huh?

    Um, doofus? Do you read what you yourself write? You just said it was a good thing Russia was developing a new pipeline. What’s it going to fill that with, Sovyetskoye? Damn, you’re illiterate.”

    Filling it is not critical now, since it won’t be in service for a couple of years. Plenty of time for demand to recover.

    “What if demand doesn’t recover before Russia goes bankrupt, you baboon??”

    Phoby, Phony, Phoby. If the current recovery is so shallow that gas demand dosen’t recover by the time Nord Stream is completed, then we’re all in trouble, and Russia less than most. And considering that even in the dark days of Q1/09 Russia had a current account surplus, your talk of bankruptcy is clearly driven by your frustration that nothing of the sort shows any actual evidence of occuring. With the Russian Central Bank buying Euros again to stave off a rising Ruble, I’d say that you’re in for increasing frustration going forward.

    It’ll sure be fun to watch you froth in impotent rage as “The dogs bark. The caravan passes.”

    “A recent gas summit predicted it won’t, and that Russia is doomed. You ought to read more. If you can read.”

    Yeah, yeah. And what is it that’ll do Russia in next month, lol!

    Comment by rkka — November 9, 2009 @ 5:36 pm

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