FORD RETURNS TO ROMANIA AFTER 60 YEARS

C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000237

SIPDIS

SIPDIS

STATE FOR EUR/FO - JGARBER
NSC FOR ASTERLING

E.O. 12958: DECL: 03/24/2018
TAGS: EINV ECON PGOV PREL RO
SUBJECT: FORD RETURNS TO ROMANIA AFTER 60 YEARS

REF: A. 2007 BUCHAREST 793


B. 2007 BUCHAREST 1063

Classified By: CDA Mark Taplin for reasons 1.5(b) and (d).


1. (U) SUMMARY. Ford Motor Company and the Government of
Romania formally completed Ford's takeover of the Automobile
Craiova autoplant at a ceremony on March 21 involving Prime
Minister Calin Popescu-Tariceanu and ranking Ford Europe
officials, along with President Traian Basescu and the
Ambassador. The handover followed closely on the heels of a
European Commission state aid investigation that identified
27 million Euro in "inappropriate" state aid to Automobile
Craiova. The deal marks the largest ever U.S. industrial
investment in Romania by far and represents a big step
forward in our growing bilateral economic relationship. The
Ford Motor Company is returning to Romania after a more than
60-year absence, having manufactured automobiles in Bucharest
before World War II. END SUMMARY.


2. (U) Ford Motor Company and the GOR marked the conclusion
of the sale of the Automobile Craiova autoplant at a March 21
ceremony in Craiova attended by PM Tariceanu, Ford of Europe
CEO Jon Fleming, President Basescu and the Ambassador. PM
Tariceanu, the foremost Romanian champion of the deal,
underlined that Ford's investment is transforming Romania
into "the most important car manufacturer in Southeast
Europe," pointing to the positive ripple effects on the
Romanian economy that will ensure. President Basescu thanked
Ford for "giving this chance to Romania" and for "investing
its trust in Romania and in the people of Craiova."


3. (SBU) Ford's takeover, originally scheduled to be
completed by the end of 2007, was delayed several months
following the opening of a European Commission investigation
in October 2007 into the terms of the privatization. Ford
and the GOR worked around the clock to respond to Commission
investigators and PM Tariceanu actively lobbied the
Commission to reach a speedy conclusion. After a four-month
inquiry, record-setting in its speed by some accounts, the
Commission found the conditions the GOR had imposed on the
sale (e.g. ensuring a certain production and employment
level, sourcing a significant percentage of inputs on the
Romanian market) to be inconsistent with the EU acquis and to
have potentially lowered the final sale price. The EC ruled
that the GOR must recover 27 million Euro from Automobile
Craiova. While neither Ford nor the GOR agreed with the
conclusion, both parties were pleased that the investigation
was concluded in an expeditious manner, far more rapidly than
the 18 months initially predicted by the Commission.


4. (U) Ford's final purchase price is 57 million euros for
the 72.4 per cent stake in Automobile Craiova owned by the
state. The company has committed to technological and
environmental investments worth 675 million euros to upgrade
the facility and increase output to 300,000 cars, up from the
current 200,000 cars installed capacity to date. Ford also
intends to maintain the current engine output of 300,000
units per year. According to Ford, up to 90 per cent of
vehicle production and 70 per cent of engine production will
be exported, mainly to other European countries. According
to Fleming, Ford of Europe's seven manufacturing facilities
are currently operating at 100% capacity. The Craiova
facility, to be christened Ford Romania, will enable Ford to
expand its European presence to over 2 million units per
year. The first Craiova-built Ford vehicle will come off
the production line around the middle of 2009.


5. (U) Ford's investment in Craiova marks a return to Romania
after over 60 years. The Ford Motor Company originally
entered the Romanian market in 1931, and began manufacturing
at a plant in Bucharest in 1936. The plant continued to
manufacture automobiles and trucks until the outbreak of
World War II. Romania's Soviet-dominated postwar regime
nationalized the facility in 1946. Thus Ford's return is not
without symbolism as Romania continues to make rapid progress
emerging from the economically and socially devastating years
of Communist rule.

Comment
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6. (C) Ford's investment in Craiova marks the largest
American investment to date in Romania's manufacturing
sector. While much of the focus in the U.S.-Romania
bilateral relationship has rightly been on our close defense
and security partnership, U.S. investments over the course of
the last four years have dramatically increased. For those
politicians who had questioned how Romania would benefit

BUCHAREST 00000237 002 OF 002


economically from its close ties to Washington, the Ford
investment is a strong riposte. Still, few occasions in
Romania are immune to the local gamesmanship. While both the
President (a last-minute addition to the ceremony program)
and the PM stressed the significance of Ford's investment,
they could not restrain themselves from publicly sparring
over a disputed car tax on automobiles, accusing each other
of acting to protect their own or their financial backers'
interests. Even though much of the local media coverage
centered on the two men's inelegant dust-up on national TV,
the importance of the Ford Romania deal for Romania's
economic future and for our bilateral relationship
nevertheless was the real story of the day.
TAPLIN