Petulant Putin, Pouting

Streetwise Professor rips Mr. Putin a new one:

GM has finally come to its senses and rejected the sale of Opel to Canadian autoparts maker Magna–and its Russian partner (initially Sberbank, but eventually Avtogaz).  GM initially agreed to the deal when faced with an existential crisis in the early part of this year; its “choice” of partner was largely driven by Germany’s conditioning of financial support for the deal on GM selling to the Canadian-Russian tandem.  GM got cold feet in the summer, as its bankruptcy/government takeover and cash-for-clunkers gave it a financial respite.  It was explicitly reluctant to get involved in a deal that could lead to the loss of its technology and intellectual property to a potential Russian competitor; no doubt it was also reluctant (though it did not say so publicly) at the prospect of getting enmeshed (as a minority partner) in the financial and business machinations of Oleg Deripaska, victor in the bloody aluminum wars, unscrupulous businessman, and arguably the world’s largest insolvent.  Moreover, recent statements by the EC called into question Germany’s ability to condition its subsidies to favor factories located in Germany at the expense of others in Belgium, Spain, and the UK.

The decision of GM’s board to maintain control of Opel touched off howls of protest from Germany–and Vladimir Putin.  Putin was outraged that GM would act in such a high-handed way.  A deal is a deal, after all–if it works in Russia’s favor.  Putin made heavy hints that Russia would explore legal options.

Cry. Me. A. River.

Actually, the irony here is too rich for words.  Let’s remember the narrative that justified the rough treatment of Shell a few years ago.  When Russia was on its knees, the story goes, opportunistic oil companies exploited Russia’s economic desperation by forcing it to enter into humiliating production sharing agreements that were tilted heavily against the Russians.  In the mid-2000s, the worm had turned, oil prices had risen dramatically, Russia was no longer on its knees, and it redressed the injustices inflicted on it during its time of troubles by forcing Shell (through regulatory thuggery) to tear up the PSAs and sell its interest in Sakhalin at Putin’s price.

Fast forward to 2009.  GM is on its knees.  Russia–with the connivance of a German government facing re-election–takes advantage of the company’s distress to enter into an agreement that it would never countenance under other circumstances.  Months later, its hour of desperation past, GM reconsiders the deal and tells Putin to pound sand.

Tell us how it feels, Vladimir Vladimirovich.

But note one crucial difference: unlike Shell and Russia, GM had not signed on the dotted line.  It backed out before it had entered into a binding legal obligation.

An interesting lesson in corporate governance that Putin might well heed.  A board of directors overrules its management.

Truth be told, there are no truly sympathetic figures in this saga.  A company (GM) that wasted tens of billions of dollars in capital over decades.  Its overprotected, overpaid, unionized labor force.  A government (Germany’s) attempting to buy votes by subsidizing an industry plagued by overcapacity that should shrink, and doing so in a beggar-thy-neighbor fashion, all the while providing assistance to an opportunistic, corrupt Russian government and business that has co-opted wide swathes of the German political and economic elite.

This is an embarrassment to Germany’s Merkel, but one which hopefully will get her to reconsider her rather mystifying obsequiousness towards Putin and Russia.  But it is a particular embarrassment to Putin, for it is a very public demonstration that only the desperate (or the deluded or the corrupted) are willing to respond favorably to his blandishments.

Some would take this as an opportunity to contemplate what changes would make his country attractive to anyone but those with no other option.  But this surely will not happen in Putin’s case.  Instead, we can expect a litany of whines about how the Europeans and Americans are making Russia a pariah.

Actually, VV, no help needed: you’re doing a bang up job of that all by your lonesome.

4 responses to “Petulant Putin, Pouting

  1. The issue isn’t GM, its this new Russian-German strategic alliance and co-operation. People thought foolishly that after Schroeder went and Merkel came in that the Germans and Russians would end their odd relationship. But no, on the contrary the Germans and Russian have revved up their incestuous love making to a whole new level.

    Germany along with Italy have been for all intense and purposes the Kremlin’s most effective lobbyists and propagandists. The French for all their posturing and verbiage have done nothing to confront or curtail Russian expansionism.

    Germany, France, and Italy VETOED Ukraine and Georgia’s entry into NATO twice in 2008. German business and industry salivates at the prospect of Russia’s market and resources.

    US strategic interests are being ruined by this Russian-German relationship. If the US is remotely interested in its prestige and vital interests in Europe it must do something about this.

    Europe is slipping away, the Russians now have a toehold in the West via Berlin.

  2. All companies from the west should think long and hard before making investments in Russia, for a start there is an acute problem with corruption at every level, it is estimated that a small or medium size company in Russia has to allocate 20% of it set up budget to cope with pervasive corruption.

    In Russia every business must re-register annually only last week in Moscow the engine room of the Russian economy there was a kilometre long line of professional business people standing outside the one and only tax re-registration office in Moscow the government tried to reassure these professionals that they had until January to re-register, Put simple they did not trust the words of their own government.

    Let me tell you about the treatment of BP. In Russia BP is in partnership with Russia’s TNK. Two years ago when the price of oil was high and Putin’s Russia was full of self confidence, a concerted effort was made by state owned Gazprom to push BP out of Russia. One of the dirty tricks used was as follows, a company registered in a small workshop in the Urals purchased $40,000 worth of shares in BP/TNK a drop in the ocean one might think, but this was just enough to allow this mystery shareholder the right to independently call in Russian immigration, this shareholder claimed that there were irregularities with some of the foreign BP staffs visas. Immigration instantly reacted with great zeal harassing these poor people, Immigration only backed off when BP threatened to remove all its foreign workers and it dawned on the Russians that the company could not function without these highly skilled technicians. This was only one small part of the campaign.Gazprom eventually lost but BP had to replace their CEO to appease the Russians.

    The point I am trying to make is that business and politics are very closely linked in Russia and investers must proceed with caution, Please remember over 50% of the economy is state controlled.

  3. Merkel is a product of the old East Germany and has been exposed to Soviet brain washing……A woman not to be trusted

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