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OO RUEHAG RUEHDF RUEHLZ
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O 281301Z AUG 09
FM AMCONSUL FRANKFURT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1644
INFO RUCNFRG/FRG COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 02 FRANKFURT 002257 
 
DEPARTMENT FOR EUR/CE 
 
SIPDIS 
 
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 
------------ 
 
¶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