Streetwise Professor

Spiegel has released a long article chronicling the Opel saga.  In brief, the story appears to be that GM originally agreed to the Magna-Sberbank/Avtogaz deal out of desperation, but as its existential crisis eased due to the infusion of massive amounts of US taxpayer support, relief from debts resulting from the lightening bankruptcy, and latterly cash-for-clunkers, GM decided that it wasn’t in any hurry to sell Opel.  And in particular, it wasn’t in any hurry to sell it to Magna-Gaz.

This shouldn’t be a big surprise.  Magna isn’t in great financial shape itself (what autoparts manufacturer is?).  There is also reason to be concerned about IP.  Also, the competing offer from RHJ gives GM a stronger opportunity to buy back Opel.

But I think that the main reason is that GM doesn’t want to be a minority partner in a business with Gaz–and hence with Oleg Deripaska.  Being a minority shareholder in a deal involving a company like Gaz, and a character like Deripaska, is often quite unpleasant.  Deripaska and Gaz are in very bad financial shape, and would have every incentive to try to exploit Opel through myriad means (including transfer pricing and capital expenditures) that would divert funds and resources from Opel into Gaz in order to prop up their tottering operations.  GM would know that the Russian government would throw its weight around in Gaz’s support.  What’s more, with Germany being so subservient to Russia, and providing a good deal of financial support to this deal (but no other), GM (and hence us, fellow American taxpayers) would face the prospect of having the Germans put pressure on GM to favor the Russian partner.  Now Gaz would not have a majority stake, but the Russians are past master at playing divide and conquer, and could exploit and foment divisions between GM and Magna in order to favor Gaz.  With the Russian, and likely German, governments on its side, it could make GM’s life miserable.

GM’s original embrace of the deal is understandable, given its straits at the time it agreed to it.  Similarly, its current reluctance to proceed is understandable, given the unsavory nature of its partner and the passing of its existential crisis.

What is hard to understand is Merkel’s (and Germany’s) intense interest in this deal, as opposed to an alternative like the RHJ offer.  The Magna-Gaz deal and RHJ deal would have about the same impact on jobs in Europe overall (about 10K), but the Magna-Gaz plan would cut fewer jobs in Germany.  (So much for “Europe”–it still usually comes down to national interests.)  But I doubt that the difference of a couple of thousand of German jobs fully explains the German dedication to the Magna-Gaz offer.

Instead, the singleminded way in which Merkel and Steinmeier are pushing for GM to accede to the Russian-Canadian offer seems to be further evidence of their thralldom to Russia, and Russian business interests.  Why Germany should be in thrall to Russia in this rather embarrassingly public way is a puzzle.

Germany has had economic problems, to be sure (who hasn’t?), but its economic fundamentals are far stronger than anything Russia can achieve of ever dreaming.  Why does it seem so intent to tie itself to a shambolic Russian economy, decrepit and corrupt Russian companies, crooked and thuggish Russian oligarchs, and an authoritarian Russian government?  What does it get in return?  Can it really be gas?  If so, does it believe that all this groveling will really make a difference when Putin (or whoever succeeds him) finds it profitable to turn the screws some day hence?

It is really demeaning and unseemly.  Rational calculation seems incapable of explaining this at-the-feet display; some psychological phenomenon seems at work here.  I’m an economist, so I’ll leave the diagnosis to professionals.

In the meantime, I hope GM hangs tough–and leaves Gaz, Deripaska–and Merkel–twisting in the wind.