Identifier
Created
Classification
Origin
09MOSCOW2296
2009-09-04 07:25:00
CONFIDENTIAL
Embassy Moscow
Cable title:  

REGARDLESS OF OPEL DECISION, GM PREPARING TO

Tags:  ECON EIND EINV RS EU GE 
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P 040725Z SEP 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 4732
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002296 

SIPDIS

STATE FOR EUR/RUS, EEB/IFD
TREASURY FOR TORGERSON, WRIGHT
DOC FOR 4231/MAC/EUR/JBROUGHER
NSC FOR MCFAUL

E.O. 12958: DECL: 09/04/2019
TAGS: ECON EIND EINV RS EU GE
SUBJECT: REGARDLESS OF OPEL DECISION, GM PREPARING TO
EXPAND RUSSIA PRODUCTION

REF: MOSCOW 1617

Classified By: DCM Eric Rubin for reasons 1.4 (b and d)

-------
Summary
-------

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002296

SIPDIS

STATE FOR EUR/RUS, EEB/IFD
TREASURY FOR TORGERSON, WRIGHT
DOC FOR 4231/MAC/EUR/JBROUGHER
NSC FOR MCFAUL

E.O. 12958: DECL: 09/04/2019
TAGS: ECON EIND EINV RS EU GE
SUBJECT: REGARDLESS OF OPEL DECISION, GM PREPARING TO
EXPAND RUSSIA PRODUCTION

REF: MOSCOW 1617

Classified By: DCM Eric Rubin for reasons 1.4 (b and d)

--------------
Summary
--------------


1. (C) Despite press histrionics about GM "refusing" to sell
to Russians, indications are that -- in one corporate form or
another -- GAZ' Nizhny Novgorod plant will start producing GM
cars in the next 12-24 months. According to sources at GM
CIS, regardless of the GM Board's decision about Opel, GM's
strategic planning for Russia remains the same. Either via a
successful Magna/Sberbank bid for Opel or the "pre-Opel"
negotiated joint venture, a GM platform will be installed in
Nizhny for the Russian car market, which is currently
predicted to return to pre-crisis levels in 2013.
--------------
GM Plans Unaffected By Opel Decision
--------------


2. (C) Almost two years ago, GM CIS (in charge of GM sales
and production in Russia and the CIS) began negotiating a USD
1 billion joint venture agreement with the GAZ Group to
produce GM cars at GAZ' Nizhny Novgorod plant. (Reftel.) In
June, when the Magna/Sberbank bid was preliminarily chosen to
buy Opel's European operations, GM CIS believed the
acquisition would facilitate the rapid conclusion of the
GM-GAZ joint venture. Furthermore, with implicit GOR support
(Sberbank is a state-owned bank),GM CIS anticipated a degree
of GOR protection. The GOR, in turn, publicly hailed the
potential purchase of European Opel as a way to gain access
to Western technology that would invigorate Russia's auto
industry -- at a good price. Since then, the negotiating
process has stalled and rumors have begun to circulate that
GM now favors the bid from RHJ (an Belgian investment firm),
which would allow it to buy back European Opel and that it is
opposed to Russian participation in the deal because it is
concerned about losing control over GM technology.


3. (C) GM CIS, however, has told us that this is not the
case. Even if GM rejects the Magna/Sberbank bid, GM CIS

intends to go forward with the joint venture. According to
Heidi McCormack (Amcit, please protect),Executive Director
of GM CIS, the practical results of either outcome would be
substantially similar. In either case, a GM platform would
be installed at the Nizhny plant and GAZ would pay royalties
to produce GM cars. (Note: we suspect, however, that without
Magna/Sberbank participation, GAZ Group's Oleg Deripaska
might have more difficulty in sourcing financing, since GAZ
Group is already struggling with USD 1.5 billion debt, owed
primarily to Russian government-controlled banks. End note.)
In any case, according to McCormack, the objective would be
to turn the Nizhny plant into a domestic producer of GM cars
for what was, until the crisis hit, a vibrantly expanding
market.

-------------- --------------
Bruised Russian Egos And Possible Short Term Setback
-------------- --------------


4. (C) McCormack noted that GM's rejection of the
Magna/Sberbank bid for Opel might bruise Russian egos and
delay getting the joint venture back on track for two to four
months. However, since current predictions by Ford and GM
were that the Russian car market would not recover to its
pre-crisis levels until 2013, there was time to spare.


5. (C) Other observers were equally phlegmatic about a
possible GM rejection of the Magna/Sberbank deal. The German
Economic Counselor told us that, Chancellor Merkel's
statements notwithstanding, the German government (and
particularly the Embassy) was not "overly engaged" in
lobbying for the Magna/Sberbank bid. Troika Dialog auto
sector analyst Mikhail Ganelin told us that, given crashing
Russian demand (July car sales were down 58 percent y-o-y),
GAZ' acquisition of European Opel would not enhance the
sector significantly. He noted that while the Opel line
would possibly make GAZ more competitive over time, GAZ's
competitive advantage remained in production of light,
inexpensive commercial vehicles, not passenger cars.
Ganelin suggested that GAZ devote its energies to improving

MOSCOW 00002296 002 OF 002


its traditional product line to help it pay back its debt.
(Note: Ganelin was not aware of the GM CIS-GAZ Group joint
venture as that information has not been made public. End
note.)

--------------
Technology Transfer Will Not Occur
--------------


6. (C) Much of the press speculation covering GM's doubts
about Russia as a partner have highlighted intellectual
property protection concerns. McCormack conceded that
communication with the Russian side on technology transfer
remained tense. She explained that while GAZ Group, either
as Magna/Sberbank's industrial partner or GM's joint venture
partner, had the right to use technology via royalty payments
-- just like every other global GM manufacturer -- GAZ could
not buy GM's technology. "It is not for sale," McCormack
stated. Therefore, she added, whatever form the deal took,
there would not be wholesale technology transfer to
resuscitate Russia's car industry "writ large". She
concluded that until Russian car manufacturers could display
the requisite planning skills and tenacity to develop their
automotive industry by training engineers and managers over
the long term, it was not possible simply to "leapfrog into a
technologically advanced state".

--------------
Comment
--------------


7. (C) Whatever decision is made on Opel's European division,
GAZ will likely be producing GM cars from an existing GM
manufacturing platform. Assuming an eventual rebound in the
domestic demand for cars, GAZ-produced GM's are likely to be
competitive as they have the advantage of being a
Western-designed car without the expense of import tariffs.
Such a rebound, however, does not appear imminent, and it
will be several years before there is significant demand to
justify increased production. End Comment.
Beyrle