GM'S DECISION TO RETAIN OPEL STUNS THE RUSSIANS

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002732 SIPDIS STATE FOR EUR/RUS, EEB/IFD TREASURY FOR TORGERSON/WRIGHT DOC FOR 4231 MAC/EUR/JBROUGHER NSC FOR MCFAUL E.O. 12958: DECL: 11/05/2019 TAGS: EIND EFIN RS SUBJECT: GM'S DECISION TO RETAIN OPEL STUNS THE RUSSIANS REF: A. MOSCOW 1617 ¶B. MOSCOW 2296 ¶C. MOSCOW 2336 ¶D. MOSCOW 2522 ¶E. BERLIN 1395 Classified By: ECON MINCOUNS MATTHIAS MITMAN, REASON 1.4 (B, D) -------------- Summary -------------- ¶1. (C) The GM Board's decision to retain Opel and not sell to the Sberbank/Magna consortium has come as an unpleasant surprise to the Kremlin. Some GOR officials believe the USG, not GM, made the decision for political rather than economic reasons. Sberbank and Russian labor unions have not yet reacted publicly to the news. GM Russia told us that Magna's reluctance to close any plants in Europe and GM's improved financial position raised questions about the long-term viability of the Opel sale. In addition, Germany's behavior regarding funding and labor issues made it impossible for the GM Board to attest that it had chosen Magna/Sberbank for purely economic reasons. Even without the Opel deal, however, GM Russia is likely to produce GM-based cars in Russia in partnership with Oleg Deripaska's GAZ. End Summary. -------------- -------------- Germany and Magna Made Deal Difficult for GM Board -------------- -------------- ¶2. (C) According to Heidi McCormack, Executive Director for New Business Development of GM Russia, a number of factors contributed to GM's change of heart. McCormack told us that once the EU questioned the deal, it was impossible for GM to attest that the Magna choice had not been tied to German government funding conditions, when everyone knew that RHJ International was the preferred bidder. In addition, Magna's continual "cave-ins" to European unions and promises to close no plants in Spain, Germany, or UK made bankruptcy in the next two years a real possibility. In combination with a "dramatically improved financial situation," GM decided to keep Opel for itself. -------------- Surprise for Russia -------------- ¶3. (SBU) The GM Board's decision to end negotiations on the sale of its European Opel plant to the Canadian auto parts maker, Magna, and Russia's state-owned Sberbank caught the GOR by surprise, according to PM Putin's spokesman Dmitry Peskov. The sale had already been approved by the Opel Trust, he said, noting that Magna and Sberbank would now undertake a legal analysis of the situation. He reportedly added that the GOR would "not participate in such an analysis." Nevertheless, Putin has publicly supported the Canadian-Russian purchase of European Opel, noting earlier in the fall that the Opel deal would be incorporated into GOR's strategy for developing the Russian car industry. ¶4. (SBU) GM's announcement comes a week before a meeting of a GOR commission to discuss Deputy Prime Minister Shuvalov's proposals to reform the Russian automobile industry. Shuvalov's proposals reportedly include a government injection of two billion USD to support the near bankrupt AutoVaz plant in Tolyatti. But the GOR was also counting on Nizhny Novgorod's Gorky Automobile Plant (GAZ) becoming a potential industrial partner for Opel in Russia. GAZ had announced it was prepared to produce Opel models on its production lines, currently used for the less profitable domestic Volga Sibir model. -------------- GAZ Will Continue to Work With GM Russia -------------- ¶5. (C) According to a press statement by GAZ Deputy Chairman Elena Matveeva, however, GAZ "has been and will remain a GM partner." She stated that GAZ and GM still plan to go ahead with assembling GM models at GAZ production facilities. MOSCOW 00002732 002 OF 002 McCormack confirmed that this had been GM Russia's "plan B" should the Opel deal fall through for any reason and that GM Russia continued to be "very interested." This joint venture would see GM working directly with GAZ to produce a line of cars specifically for the Russian market based on GM technology. (Note: Although U.S.-based GM officials were rumored to have deep reservations regarding intellectual property protection, GM Russia has expressed confidence in its ability to manage the issue as well as GM handles it in other countries such as China. End note.) -------------- -------------- Sberbank, Labor Silent; Duma Attributes It to Politics -------------- -------------- ¶6. (SBU) Sberbank has yet to release a statement on the Opel deal. Market analysts believe that GM's decision to retain Opel will be positive for Sberbank. As "Troika" investment analysis wrote back in April, Sberbank's initial investment (Euros 250-300 million for a 27.5 percent stake) was relatively insignificant and the bank intended to offload it quickly. Sberbank's involvement in the Opel deal is viewed by the analysts as primarily political, rather than economic - and far removed from its core banking business. ¶7. (SBU) Similarly, First Deputy Speaker of the Duma, Oleg Morozov, from the ruling United Russia Party called the GM Board's decision a "political rather than economic move". He claimed that the move could not have been made without the consent of the USG, which owns 60 percent of General Motors. -------------- Comment -------------- ¶8. (C) While the GM decision is clearly a blow to Russian desires that the Opel deal would revitalize the domestic car industry, those hopes were likely unrealistic. We need to counter the GOR assumption that GM is controlled by the USG and the decision was made or directed by USG interests rather than by GM management. GM's announcement comes fresh on the heels of considerable press speculation about the details of GAZ Group owner Oleg Deripaska's recent trip to the U.S.. We expect there will be plenty of press fodder for conspiracy theories on whether that trip and the GM decision were interconnected. If asked by our GOR interlocutors, we will stress that the GM decision was made strictly on economic/financial grounds and that the USG did not influence that decision-making process. Beyrle