THE BLOG

General Motors: Cold War Part II

09/25/2009 05:12 am ET | Updated May 25, 2011

The old saw "what's good for General Motors is good for America" is why I wrote in my blog, on August 12, that the Magna International/Russian attempt to take over GM's European operations, Opel, would fail. Looks like I might be right: GM's board just nixed it despite German pressure.

There are other pressures from countries, unlike Russia, who are allies of the United States. This is important because American taxpayers own a big chunk of GM as part of the bailout.

But GM's board is independent and has other reasons for deciding to make no decision and explore other bidders and other strategies, including raising capital. Its reasoning is simple.

Firstly, General Motors' prospects are improving and there is widespread sentiment that its European operations should not be sold now nor should they be allowed to be taken over in order to protect technology.

Secondly, if a sale is needed it should not surrender control. If control must be surrendered it should be in the hands of a friendly company, not with a Canadian company in bed with Putin's plutocrats.

Besides those reasons, the Germans have ignored an America-Japanese-Belgian bid for Opel and this is, to say the least, somewhat suspicious. My guess is that German Chancellor Angela Merkel has no option but to say she supports the Russian bid because a) her opposition, the Social Democratic Party, does; b) Germany cannot bite the energy hand that feeds it in Moscow and c) she knows she can, and get away with it, because there's no way GM -- and its Washington shareholder -- is going to sell technology to the annoying and potentially dangerous Russians.

On top of that, there is the issue of jobs. Opel employs 55,000 workers but an even number work outside Germany, in Britain and Poland, America's closest allies. Clearly, the concern here is that a Russian/Canadian controlling shareholder will divert jobs from Western Europe to Russia in order to prop up its flagging auto industry and tap its burgeoning market.

As I said earlier in August, GM will opt for the Belgian-based bidder -- or another strategy -- no matter how much Merkel promotes and gives away money to the Russian entry.

Merkel also has been taken off the hook by GM's decision to do nothing with the Russians as she faces an election on September 27. She won't be pressured by Moscow any more and can now blame the GM and the Americans, always popular with socialists, Russians and others. But many Germans may already feel there is too much Russian control over Germany's economy through its energy monopoly.

As for Magna, founder and chair Frank Stronach would have been wise to invite in another partner -- with expertise, capital and a non-malevolent reputation. If he had done so, notably a European or American partner, he may have already captured the prize.

Instead, Stronach's Russian partnership arrangement has been murky and fluid. Percentages of ownership by the Russians have had to be rolled back, eliminating the possibility of a Magna-Russian control block. Initially, the Russian backer (Oleg Deripaska) was supposed to be Frank's partner, then it was a Russian bank, then that bank's ownership was only supposed to be temporary.

Besides, Stronach's own history with Deripaska is confusing. He sold part of his Magna control block to him, announced grand schemes to create a Russian-based car manufacturing giant, and then found out his partner wasn't as flush as was thought. The Russian had financial problems and his Magna stock became the property of his many lenders. Despite that major hiccup, he's hitched himself to the same leveraged partner.

Putin, and Dmitri Medvedev, are pressuring Germany, always a bad move, which more or less "encourages" Chancellor Merkel to come out publicly as a supporter. Her hand is also forced somewhat because her predecessor, socialist Gerhard Schroder, is pressuring his party and others on behalf of the Russians. He is on the Russian payroll as a director/consultant/lobbyist for Gazprom and others.

Stay tuned. It's Car Wars. The saga.