Quick witted American capitalists

Over the past year there have been many attempts and proposals aimed at policy making that in some sense or another have mocked the strong beliefs so many countries proudly held up high. Now, after the hardest blows seem to have passed, traces of national protectionism have popped up everywhere. The most infamous known is probably Barack Obama’s import tariffs on Chinese tires, though the uproar this caused in China hasn’t lead to serious counter strikes yet.

But there are other ways than tariffs to regulate the market or, in a less ambitious sense, try to influence its direction. Here the big car companies might come to mind.  And rightly so: The money involved with the bail-out of General Motors (GM) was high. Recently, with the involvement of the German government in order to speed up and secure the sale of car-manufacturer Opel, the tale has got a new twist.

Herein GM at least showed us last week that they still know what it is to do business. The company has since 1929 been the owner of Opel, a German car-brand. But the crisis hasn’t loosened its grip completely, wherefore the sale of Opel was thought to be a necessary or wise step to cure the company of its many illnesses. But American GM had not so much a change of heart, as a change of opportunities. And opportunities are taken, not handed out is what they seem to think. Germans in any case didn’t see this coming, judging by their calls of outrage. Because now we know GM will not be selling the brand Opel to Magna. The reasons are clear.

It started because Germany was reluctant to turn a blind eye to the laying off of too large a share of its workforce, since they think it is important to keep as many people working as possible. So to prevent GM from drowning they offered 1,5 billion Euros in order to close the financial gap, which was aimed at securing possibilities for an Opel-sale. And they took it to be as such. But another offer by German politicians of 4,5 billion Euros, eventually changed the whole scene. At first this provisional loan was aimed at Magna (a Canadian company) and Sherbank (a Russian company), to make sure that after the take-over German Opel factories would remain operational. Before we go over the whole issue why GM is not selling, several points should be noted.

The first is the fact that European institutions do not seem to put free market reign on an untouchable pedestal anymore. Help provided in this manner is something which cannot be compared to bank bail-outs, which were necessary from a more general point of view. Second is that the Germans might feel betrayed by their American car-colleagues, but they have absolutely no reason to. A more tentative note might be stated as a question: What would have happened when neither GM nor Opel would have made it? It’s clear; survival without help can be summarized as ‘unlikely’. But Germany’s help towards both GM and Opel came on top of everything the White house had already done. It is hard to get rid of the impression that the two companies would have walked straight into death’s outreaching arms without it. But maybe we should be glad that they have not. Many people depend on their jobs, and so do quite a lot of businesses that can only work because they are so intimately tied to the car-makers. A rich history and an excellent body of knowledge can hopefully only be helpful in the future as a driving force for innovation.

The story continues with Neelie Kroes, the European Commissioner for Competition. She demanded that the money reserved for securing Opel’s future would have to be available for any (potential) owner, not just for a set of two buyers who were willing to meet German demands. The strongest argument to support her claim runs on government partiality, which shouldn’t put competitors at a disadvantage by their free-market meddling. And indeed, with an aid-kit of money it seems likely that even General Motors would have acted swiftly in deciding not to sell the company.

In any case the process greatly slowed down the process of an Opel-sale, and eventually killed it. The economy, though far from total recovery, can at least leave the intensive care. And GM states more or less to be thinking along those lines when they explained why Opel will not be sold:

[because of] “an improving business environment for GM over the past few months, and the importance of Opel/Vauxhall to GM’s global strategy.”

Businesses are not founded in order to please politicians, and that is something well understood by GM. They took the 1,5 billion euro stimulus gladly. Bu if Opel were in sound health it wouldn’t have to be sold in the first place. So it’s reasonable to think that GM was or is unwilling to sell such a company if it has no financial reasons to do so. Some billion Euros of aid would do the trick for potential buyers, but its actual owner thought so too.

What counts is the result, clear as it may be that Germany did not like being outwitted by the American company. But why wouldn’t GM be entitled to the same help as all of the others? Whether the stimulus package is a good thing remains in the open, but Kroes is right in insisting that if the money is available to one buyer, than likewise to its competitors. And now with the market making a slight bend towards more promising grounds, GM is hardly to blame for this clever move.