Should the European Commission block the GM-Magna deal?
By: Dr Peter Wells, Monday, October 19, 2009, AutomotiveWorld.com
On Friday 16th October the Competition Commissioner Neelie Kroes wrote to Karl-Theodor zu Guttenberg, the German Minister for the Economy, identifying what was reported as 'significant indications' that aid from the German government to Opel was subject to the precondition that the Canadian automotive components manufacturer Magna was selected as buyer - a policy that would be contradictory to EU competition rules. That is, the German government had in the run-up to elections in the country offered €4.5bn in aid only if its preferred buyer for Opel was chosen. As such, this aid would amount to using public money to distort free and fair competition.
It is a situation that goes to the heart of the purpose of the European Community and the inevitable entanglement between politics and business that, when the stakes are high, can mean quite profoundly different outcomes for workers and their families according to whether they live in Belgium, Germany, Spain or the UK.
If businesses were not allowed to fail, Europe would slowly but surely drown under the weight of moribund assets.
This situation can be seen as the outcome of simple economic power. Germany is not only host to the core Opel operations, it is also in the position to offer the most substantial aid and, of course, has the most to lose should Opel collapse. The European Community, however, has always been seen as transcending and negating the narrow application of nationalism for very good reasons - which are evident upon only a cursory examination of European history.
It is also the case that politicians are rarely good at business management and strategy. It might be, for example, that the best political compromise is to keep all the ex-GM Europe plants open, albeit at reduced volumes, but this could cripple the business going into the future.
There is also a much larger question here. In principle the free-market system works through economic signals and the process of competition. If a business fails in the market, the maintenance of that business imposes a social and economic cost of resources invested that could have been placed elsewhere - probably somewhere more productive. If businesses were not allowed to fail, Europe would slowly but surely drown under the weight of moribund assets. This is the point of European competition policy. It is there to prevent national governments from propping up 'their' companies at the expense of the rest of the community.
Right now what the business most needs is clarity for the short-term future, so that suppliers, workers, investors, dealers and critically customers have confidence.
Ultimately, this will be a matter to be resolved under European law, but that too brings problems. Not least, the legal process and the associated investigation into breaches of competition rules will itself be massively time-consuming and add to the prevailing climate of uncertainty surrounding Opel and Vauxhall.
Right now what the business most needs is clarity for the short-term future, so that suppliers, workers, investors, dealers and critically customers have confidence. The months that have dragged by have already been immensely damaging to the company. For this reason alone it is worth accepting the 'German' solution even if elements of it are unpalatable to some.
Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com's sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Published on Monday, October 19, 2009
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