Say what you will about the evils of globalism. One thing’s for sure: if you’re a global playa, there’s no escaping the market’s judgment. The Washington Post reports that sure, falling oil prices have taken their toll on the Russian economy. But Vlad the Inhaler’s power-grab is the real deal. “Analysts say Russia faces continuing doubts about the investment climate, given the Kremlin’s concentration of political power. These concerns were exacerbated by Russia’s war with Georgia last month. Putin’s tough, anti-Western rhetoric raised fears of a turn against foreign investors and even greater state control of the economy. Investors pulled nearly $35 billion out of the country in the weeks after the war.” Translation: GM’s highly-touted Russian investments are not looking so good, these days. “Rising inflation is a political problem. Most analysts expect inflation to hit 14 or 15 percent this year, which for the first time in Putin’s rule would leave the average Russian worse off at the end of the year than at the start.” Oh, and Putin’s regime has increased Russia’s roadways by .1 percent. [thanks to wludavid for the link]
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All very true, and as a political analyst, I’ve long warned against over-investing in Russia, but GM is certainly not alone in this predicament. The short-termist vision of most companies is creating problems, not only regarding their foreign investment, but also when it comes to their own balance sheets in their home markets.
What the heck kind of car is that? Makes for a wicked hotrod.
I believe that’s a Volga 21 bodyskin draped over a BMW 850 chassis.
I do believe it’s just a matter of time before Russia gives us a massive and highly entertaining implosion, and the more steroid pump-up they get from overpriced oil, the more spectacular the implosion will be.
Cold War II: The Putin Years …coming soon to a continent near you.
Many of the European, Chinese and Korean automakers have invested in plants, property, equipment and people in Russia.
How is the fragility of the Russian economy solely a GM problem, as you suggest?
Raskolnikov :
I was suggesting no such thing. I was focusing on GM’s problems in this market because they choose to highlight Russia as such a bright spot (see: Rick’s YouTubery).
The largest car market in Europe right now is Russia. The market may slow down, but they still have massive growth potential and I doubt there will be any serious long-term contraction.
Whatever GM’s other blunders, I don’t think going after a piece of Europe’s biggest and fastest growing markets is one of them.
What happens to GM and others if Putin restarts the Cold War II pissing match? The Russian Navy is enroute to Venezuela right now for a visit. In 1994 the US Navy ship I was stationed on made a visit to then friendly Venezuela. I don’t guess they US Navy visits there much anymore.
Could Putin and his cronies seize foreign owned assets?
Since Western Europe is very dependent on Russia natural gas and other resources might the Europeans turn a blind eye similar to what they did during the Georgia situation?
Hmm… Autocratic society where power remains concentrated among a few people in a few institutions with growth propped up by rising natural resource prices. Where I have seen this play before?
Oh, yeah. The Soviet Union from roughly 1977 to 1981. It ended badly for all concerned.
Alex, I will take repeat of history for $800.