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Cablegate: The Politics of Porsche Buyout Could Hurt Merkel's

VZCZCXRO3492
OO RUEHAG RUEHDF RUEHLZ
DE RUEHFT #2257/01 2401301
ZNR UUUUU ZZH
O 281301Z AUG 09
FM AMCONSUL FRANKFURT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1644
INFO RUCNFRG/FRG COLLECTIVE IMMEDIATE

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DEPARTMENT FOR EUR/CE

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E.O. 12958: N/A
TAGS: ECON PGOV GM

SUBJECT: The Politics of Porsche Buyout Could Hurt Merkel's
Christian Democrats in the South

Sensitive but unclassified; not for internet distribution.

1. SUMMARY: The takeover of one of Baden-Wuerttemberg's
(B-W)archetypal firms, luxury sports car manufacturer Porsche, by
Lower-Saxony based Volkswagen (VW), has local business people
grumbling, and the fallout could cause problems for the Christian
Democrat Union (CDU) as it gears up for the September Bundestag
vote. With VW now controlling Porsche, one of B-W's most
prestigious businesses has lost its independence with the net result
of Baden-Wuerttemberg losing a significant part of Porsche's
business tax payments. Within B-W, much of the fault is being
placed on Minister-President Oettinger and his lack of clout in
Berlin. The Christian Democrats need a strong showing in core areas
of support such as Baden-Wuerttemberg to do well in the September
Bundestag elections - at least well enough to be able to form their
preferred coalition with the Free Democratic Party (FDP). Current
dissatisfaction with Berlin epitomized by the VW/Porsche fallout
could deflate the CDU vote and result in some supporters staying
home or giving their support to the FDP, which already has a strong
base in the state. END SUMMARY.

SWALLOWED UP
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2. The 14 August agreement in which VW will buy up to 42 percent of
Porsche ends a long struggle between the two companies that began
with Porsche first trying to acquire VW. Between 2005-07 Porsche
bought 30 percent of VW, and by the end of 2008, held over 50
percent. Porsche then sought to take over the firm and spent 23
billion Euros planning for a bid. In April 2009, however, reports
began to surface that the company was up to ten billion Euros in
debt and facing difficulties meeting its obligations. Instead of
taking over VW, VW then sought to take control of Porsche, and a
commercial battle ensued between the two companies that was overlaid
by political maneuvering (see SEPTEL). Its resolution entails a
complete takeover of Porsche, with VW management overseeing its
operations from its headquarters in Wolfsburg, Lower-Saxony.
However, Porsche's 11,000(?) jobs in Stuttgart are not at risk.

3. The agreement also represents a major political defeat for
Oettinger at the hands of his CDU colleague, Lower Saxony
Minister-President Wulff, who aggressively pushed for a Porsche
take-over while Oettinger remained silent. Wulff worked
hand-in-glove with VW management (Lower Saxony holds a 20 percent
share of VW), while Oettinger was seen as making a relatively late
and ineffective effort to try to protect Porsche's autonomy.
Oettinger has defended his conduct, arguing that he was lobbying for
Porsche behind the scenes, and Wulff was in a better position to
influence the negotiations because of his state's direct
participation in VW.

4. (SBU) Oettinger's difficult and oftentimes tense relationship
with Chancellor Merkel also did not help. B-W Christian Democrats
were already annoyed with her in late 2008, when she made a joke
about B-W accents while speaking at VW headquarters in northern
Germany. Early in the Porsche-VW battle, Merkel openly sided with
VW. B-W officials repeatedly criticized the axis between Berlin and
Hannover, particularly in connection with the unsuccessful request
by Porsche for a 1.75 billion Euro credit line that B-W officials
believe ended any chance that it could survive as an autonomous
company. Merkel had already sided with Wulff and VW over Oettinger
in late 2008, when Oettinger unsuccessfully lobbied to end Lower
Saxony's ownership of 20 percent of VW.


A WEAKENED OETTINGER - AND A WEAKENED CDU?
------------------------------------------

5. Oettinger's perceived weak response has provoked criticism not
only from the opposition but from members of his own party, the
Porsche worker's council, and his coalition partner the Free
Democratic Party (FDP). The FDP state party press spokesman told
Consulate officials that Oettinger hesitated for too long before
acting on behalf of Porsche. These problems come on the heels of
other missteps and questions about Oettinger's political future.
Earlier this month, the prestigious Stuttgarter Zeitung compared him
to a medical patient in "serious but stable condition." In June,
he raised the possibility of a VAT increase to pay for the
burgeoning federal deficit; CDU leadership in Berlin promptly and
vociferously denied any such possibility and expressed its
displeasure with Oettinger. He is also under pressure from CDU
state parliamentary caucus chief Mappus, who appears interested in
his job and who was more outspoken on the need to intervene to
protect Porsche.

6. (SBU) COMMENT: For Baden-Wuerttemberg, Porsche is much more
than a car company; its loss of autonomy is a painful blow to the
state's self-image that could cost the CDU votes in September.
There was little sympathy on the national level to Porsche's

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predicament as it was seen as self-inflicted, but in B-W the
contrast between Berlin's response to the fate of Opel and Porsche
contributed to the appearance that Oettinger not only failed to
deliver for his state, but did not try hard to do so. The resulting
dissatisfaction has fueled the image of a divided party, which the
German electorate traditionally dislikes. In addition,
dissatisfaction with Merkel in B-W will make it harder to get out
the CDU vote there. B-W party officials complain that Merkel seems
to forget that their state is a crucial component of any CDU
victory, and in 2005 it provided Merkel with about 14 percent of her
total. FDP officials openly chastised Oettinger and Merkel during
the Porsche struggle, but as in other recent elections, they may be
in the best position to benefit in September from rank-and-file CDU
dissatisfaction with its own leadership. Oettinger has now avenged
himself by distancing himself from Merkel's strategy on Opel. END
COMMENT
ALFORD

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