Opel and the Kremlin: Risks Ahead for Germany?

Russians soon will own 35% of Opel, and the Kremlin covets the German carmaker's knowhow. An eastward shift could put German auto jobs at risk
Is Opel about to turn Russian? That may seem farfetched, but it is the question that some commentators in Germany are asking following a deal struck on Friday that will see Russian bank Sberbank (SBER.RTS) acquiring a 35 percent minority stake in the carmaker—the number of shares equal to those being kept by General Motors and significantly more than the 20 percent of shares to be bought by Magna (MGA), the Austrian-Canadian auto parts company that had been promoted as the best bet to rescue Opel.

In Moscow, Prime Minister Vladimir Putin says he would like to see the German carmaker play a future role in developing his own country's automobile industry. "The Russian government has its strategy of developing the car industry and the deal we are discussing must be embedded within the strategy for automobile manufacturing," Putin said at a meeting with officials from Sberbank and Magna on Monday, the Interfax news reported.

Roughly translated: The Kremlin would like to see Opel's know-how pumped into ailing carmaker Gaz (GAZA.RTS), which has suffered immensely as Russian automobile buyers turn to nicer and more technologically advanced models from the West. In addition to his country's European dominance in the gas and oil sector, Putin has also said he would like to build up Russia's automobile, aviation and defense industries. The Opel deal fits nicely with that strategy.

As part of Friday's deal with Sberbank, Opel is expected to cooperate as an "industrial partner" with debt-laden Gaz, which is in desperate need of modernization. Like Sberbank, which is 60 percent owned by the Russian central bank and is often considered the long arm of the Kremlin, carmaker Gaz also has deep ties to the government in Moscow. The carmaker, which produces the Volga brand, belongs to oligarch Oleg Deripaska, a 41-year-old Putin loyalist. For a long time, he was Russia's richest man, but Forbes magazine estimates he lost as much as $25 billion as a result of the financial crisis. He still has considerable influence, but in order to keep moribund carmaker Gaz afloat, he has had to take billions in loans from the government and turn over his shares in the company as collateral on those credit guarantees. For its part, Sberbank is Gaz's single largest creditor.

Putin said his government wasn't playing a direct role in the deal to rescue Opel, but "welcomed the role of Sberbank in this sphere." On Sunday, Sberbank chief German Gref, a former Russian economics minister and close confidant of Putin, said his company would "never" have been capable of closing a contract like that "without the government's support."
"Highly Advanced Technical Production"

Gref has said he wants his company to do its part to help restructure Russia's ossified automobile industry. He said his company was acquiring "highly advanced technical production" at an "unprecedentedly low price."

In Russia, Opel is already a popular brand, and sales could improve if the company is given access to Gaz's broad dealership network. Opel currently has a 3 percent market share in Russia and its new owners would like to see that share grow to 20 percent. Success there, of course, is contingent on a recovery of the Russian automobile market. It's predicted it will become Europe's largest single market for car sales, but it has also suffered radically from the economic crisis, with 44 percent fewer cars sold between January and April than a year ago, according to financial wire service Dow Jones. The Russian economy is also expected to decline by 6.5 percent this year according to the International Monetary Fund.

But the Russians, too, appear to be banking on a turnaround. On Monday, Gaz said it could be capable of manufacturing Opel models within six to nine months at its Nizhny Novgorod-based plant, with a capacity to produce 180,000 cars a year.