GM returns to Cold War fear in talks to sell Opel

[Justin Bimmer]

By TOM KRISHER (AP) – 1 hour ago

DETROIT — Behind GM's hesitation to sell its unprofitable car business in Europe lies a Cold War fear: American technology will fall into Russian hands.

It's among the main reasons why General Motors Co. has balked at finishing a deal to sell its Opel unit to a group led by Canadian auto parts maker Magna International Inc. and Russia's state-owned Sberbank.

GM announced the tentative deal with Magna in May at a time when it was desperately trying to avoid bankruptcy protection.

But now, after exiting Chapter 11 in better financial shape and encouraged by signs of better sales, the Detroit-based automaker is second-guessing the deal, worried that future auto designs could wind up with Russian rival GAZ, which competes with GM's Chevrolet, the No. 2 brand in a growing Russian market.

GM is pushing a competing bid from Brussels-based investor RHJ International SA and may even keep Opel if its worries can't be resolved. It's playing hard ball, even thought the German government, eager to preserve many of Russelsheim-based Opel's 25,000 German jobs in an election year, has offered 4.5 billion euros ($6.5 billion) in credit for the Magna-Sberbank deal.

In the murky world of Russian capitalism, both Sberbank and GAZ, maker of the Volga sedan, have strong ties to the Russian government, which has made no secret of its desire to help its ailing and outdated auto industry.

"It makes sense that GM is looking to the other alternative," said Jan Svejnar, a professor international business and public policy at the University of Michigan. "In Russia these days large companies that have a significant state stake are obviously linked."

Russian Prime Minister Vladimir Putin repeatedly has said that the government supports Magna and Sberbank's bid and hopes that the deal would help the Russian car industry.

While GAZ is years behind GM and other Western automakers in vehicle technology, GM fears that down the road, GAZ could catch up by getting GM car architecture for Opel's small and midsize vehicles and other property at no cost, using it to compete with GM in its second-largest European market.

Under the German financing deal, Opel would stop paying technology royalties to GM if Opel defaulted on its private loans, yet GM would still be required to provide new technology to Opel, said a person briefed on negotiations between GM and the German government. The person didn't want to be identified because the talks are private.

GM and Magna worked out a deal to protect GM's current technology, but the GM board fears future technology could be lost if Opel goes into default, the person said.

GAZ, maker of popular trucks, buses and minivans, has had trouble selling cars like the outdated Volga sedan. It is owned by Russian aluminum magnate Oleg Deripaska, who has strong ties to Putin. GAZ once owned a stake in Magna and recently hired GM's top purchasing executive to head its board of directors.

Also, the German government increasingly relies on Russia for oil and natural gas, so it wants to stay on Russia's good side, said Svejnar.

Some analysts believe Russia may create a national holding company by bundling its ailing domestic car manufacturers in an effort to drive efficiency and set out a strategy for the sector.

Yet others say GM's fears are overblown because GAZ has such a long way to travel to be competitive with Western automakers.

GAZ remains in business only because its cars are cheaper than other manufacturers due to Russian government subsidies and import tariffs, said Serguei Netessine, associate professor of operations and information management at the University of Pennsylvania's Wharton School.

"GAZ is in the business of producing very cheap cars from very, very old technology," he said.

GAZ, known in Russia for quality and corrosion problems, has tried to modernize through joint ventures or buying used technology from Western automakers. In 2006, it bought factory equipment from Chrysler that made old versions of the Sebring and Dodge Stratus sedans and used it to make the Volga Siber.

The U.S. government, which now owns 60.8 percent of GM and has given it $50 billion in aid, would not comment on the prospect of technology going to the Russians.

Netessine said that even if GAZ received Opel technology today, it would take years for it to begin producing vehicles because its manufacturing operations are so inefficient.

Also, GAZ, Sberbank and the Russian government don't have the capital to invest in new factories, nor do they have the political will to eliminate thousands of jobs by updating production from 1970s technology.

"Even if GM completely stops doing any research and doing any product development, maybe they're going to catch up with them in five or 10 years at the earliest," he said. "I think those fears of GM are sort of a little overestimated."

Associated Press Writers Nataliya Vasilyeva in Moscow, Matt Moore in Frankfurt, Germany, and Ken Thomas in Washington contributed to this report.

[FAPTurbo]

Nothing like bringing up the ominous Red Scare talk! Next up, they'll be saying that this is all a plot on the part of socialist Canadians and commie Russians to make the world drive Agila's and Corsa's! I don't recall GM giving such a bad spin about their joint ventures with the Chinese company SAIC which would be heavily linked with the Chinese government.

Edited August 27, 2009 by TheCaptain

[Daryl Z71]

Just sell the damn thing already before it burns through anymore cash. If they were that worried about it they should have made it more competitive so they wouldn't be in this mess in the first place.

Edited August 27, 2009 by Daryl Z71

[Intrepidation]

Just sell the damn thing already before it burns through anymore cash. If they were that worried about it in the first place they should have made it more competitive so they wouldn't be in this mess in the first place.

Except that Opels current products are competitive, more so than most of what GM currently sells.

[eldiablobanshee]

Except that Opels current products are competitive, more so than most of what GM currently sells.

+1

[Robert Hall]

Nothing like bringing up the ominous Red Scare talk! Next up, they'll be saying that this is all a plot on the part of socialist Canadians and commie Russians to make the world drive Agila's and Corsa's! I don't recall GM giving such a bad spin about their joint ventures with the Chinese company SAIC which would be heavily linked with the Chinese government.

Well, the Russian angle is a legitimate concern, seeing as to how their industries and banks are rife with organized crime corruption. I wouldn't trust anything with them.

[FAPTurbo]

Well, the Russian angle is a legitimate concern, seeing as to how their industries and banks are rife with organized crime corruption. I wouldn't trust anything with them.

But is the Chinese government any better?

[Intrepidation]

But is the Chinese government any better?

My thoughts exactly. I hope haven;t forgotten about all of the copyright infringements the Chinese have made yet we continue to share technology and info with them...automotive and otherwise.

[Daryl Z71]

Except that Opels current products are competitive, more so than most of what GM currently sells.

Ok thats good and all, but then why the hell are they getting rid of it? I must have missed something?

Edited August 27, 2009 by Daryl Z71

[FAPTurbo]

Ok thats good and all, but then why the hell are they getting rid of it? I must have missed something?

Because GM is poor, and dumb. Their being poor is due to their being dumb.

Edited August 27, 2009 by TheCaptain

[Intrepidation]

That sums it up nicely actually.

[turbo200]

interesting, as all of this has leaked to the major media source. this is all of what's been the talk about it; the talk around the net regarding this has been all about GM tech. if it's an AP source will it be picked up through more general sources?

most importantly, there may be other options to doing the Magna deal. Opel and GM together are a phenominal investment, given new GM with reduced cost structure, worldwide operations, large volumes, potential profit span. then the icing is the technology GM has developed with Opel, delta and epsilon development, probably others as well. but even if the engineering centers are a part of GM, the Opel brand represents significant market share in Europe, and volume, somewhere around 9% and 2 million units [last time i checked]. opel has history almost as long as much of GM's, and is widely recognizable and considered. both GM and opel respresent large volumes and shares around the world, both are significant companies within homeland and abound....a solid investment all around. worth keeping.

GM gains economies of scale with opel. that all important mechanism towards reducing costs. opel volume sticks around, GM doesn't have to relaunch in europe with opel, just restructure and continue improvement, and presence. brand presence/stature must continue to grow, maybe reintroduce new compact caddy line with converj based sports car, rwd platform and attractive look complete. buy the rest of saab back?

what the threat of this deal lies with too is the rights to GM tech. if it's a question of tech [though this reason could be made up], GM should not let it go. if the structure of these deals is that GM gets almost nothing for opel, then i would deny the deal in this case too. opel and gm together are worth a lot.

Edited August 27, 2009 by turbo200

[daves87rs]

Just crazy. Makes you wonder.....

[hyperv6]

Well, the Russian angle is a legitimate concern, seeing as to how their industries and banks are rife with organized crime corruption. I wouldn't trust anything with them.

I can see by some comments that many do not understand how bad things are in Russia. Organized crime is worse in Russia now than it ever was in The States or Italy. At least in Italy they had some standards. China is state run crime not unlike what we have here only with much more control. Our ethics are bad theirs are much worse.

GM is smart not to give away the technology or the chance to buy back Opel. This unit is right now a major part of their back bone and future product so why give it all away?

The people in this country had better wake up as many inside and outside out country are bent to see us fail and will stand at nothing to do it. China right now is working hard now to control the Panama Canal but you do not hear anything about that on the news. They already contol much of our ports as it is. Communist have found the way to control the world is through controled capitalisam and not bombs.

If it takes time GM needs to do what is best for GM and not just rush into a bunch of changes all at one time and not read through all the information and details on the deal. We have enought of that going on in our own country right now we do not need it backfiring on GM after we just bailed them out.