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Opel Chief Blames Asian Currency Policies for Industry Upheaval

Executive Summary

Overcapacity has been inaccurately blamed for compelling auto makers to pull up stakes in well-established regions and set up shop in emerging markets, says Opel Supervisory Board Chairman Carl-Peter Forster.

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Frankfurt Auto Show

FRANKFURT – Currency manipulation in Asia created the conditions that are shaking up the global auto industry’s manufacturing footprint, Adam Opel GmbH’s top executive charges.

Overcapacity has been inaccurately blamed for compelling auto makers to pull up stakes in well-established regions and set up shop in emerging markets, Supervisory Board Chairman Carl-Peter Forster tells attendees at a dinner held here in conjunction with the Frankfurt auto show.

Overcapacity exists, he admits. But the industry is addressing the issue, evidenced by numerous plant closings around the world.

“The real pressure comes, ladies and gentlemen, whether you like it or not, from Asia. Our Asian competitors, for many, many years, were working off a massively undervalued currency,” Forster says.

Forster’s remarks to the American Chamber of Commerce in Germany come as he finds himself at the center of a controversy that has implications for some 10,000 jobs, many of them in Germany.

General Motors Co. is selling a controlling interest in its Germany-based Opel division to a consortium led by Canadian mega-supplier Magna International Inc., which includes a Russian bank.

Forster levels currency-manipulation charges against Japan, South Korea and China. When the yen, won and renminbi, respectively, are unfairly discounted against the euro and the U.S. dollar, manufacturing costs are wiped out.

The result is “a very winning formula,” he says.

In Western Europe, through the year’s first half, Ward’s data show two auto makers in positive sales territory compared with 2008: Korea’s Hyundai Motor Co. Ltd. and Japan’s Suzuki Motor Corp.

At the brand level, just five marques were in the black: Hyundai, Suzuki, Renault SA’s Dacia, Volkswagen AG’s Skoda and GM’s Chevrolet. But the bow-tie brand, Forster notes, generates its European sales volume from vehicles assembled by South Korea-based GM Daewoo Auto & Technology Co., which is controlled by GM.

Historically, Germany has been staunchly free-market in its economic approach, Forster says. However, in recent years, it is “about the only country that is holding tight to that idea.”

Making matters worse, he says, is the European Union’s open-arms attitude toward South Korea.

“The European (auto) industry is not particularly happy about the free-trade agreement between the EU and South Korea, because we see massive political intervention in exchange rates. And continuously so.”

Detroit auto makers also have complained that Asian countries manipulate their currencies to benefit their exporters. The U.S. Treasury Dept. examines exchange rates twice a year, but violations – as defined by the U.S. Omnibus Trade and Competitiveness Act – are rare.

“No economy has been determined to have met the criteria for manipulation as set out in the Act since July 1994,” Treasury’s most recent report in April says.

In 1994, China was fingered for currency manipulation but quickly responded with reforms that satisfied Treasury.

Meanwhile, Opel’s pending alliance with Magna appears to portend as much benefit for Russia as Germany. Asked what makes Magna an appealing partner, Forster tells Ward’s: “We believe we have a lot we can accomplish together in Russia.”

The world’s largest nation in terms of geography, Russia is regarded as a potential hot spot for new-vehicle sales. But domestic assembly is essential to profitability because exporting vehicles to the growing market is problematic due to a 25% duty, Forster says.

“You can never profitably produce (vehicles) in Russia unless you have a local supply industry. There’s virtually no, or very little, (supply base). You have to build it up.”

That’s where Magna comes in, he says. Led by toolmaker-turned-tycoon Frank Stronach, “Magna has all the experience” to establish a proper supply chain.

Within hours of the deal’s approval by GM’s board last week, Magna announced some 10,000 job layoffs at Opel. But without Magna’s 55% partnership with Russia’s OAO Sberbank, which is linked to auto maker OAO Gaz Group, Opel is doomed, Forster warns.

“Opel is much too small to survive,” he says, noting development of the pending Opel Ampera extended-range electric vehicle, which shares its technology with the U.S.-market Chevy Volt, has a price tag nearing $400 million.

“That’s far too much for most manufacturers,” Forster days. “That’s why we constantly seek new partnerships. Otherwise, the industry will never be able to afford what we are asked to deliver.”


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