Vericool Finance

Saving General Motors’ cash-strapped European division from the consequences of its parent’s bankruptcy was always likely to be both complicated and highly political.  Last week the two remaining bidders for Opel and Vauxhall were invited to a summit at the German Chancellery.

Many though Fiat would come out on top, but the Italians were beaten by the unlikely alliance of a Canadian car-parts maker, Magna, and the Russian savings bank Sberbank. The irony of a Russian state bank rescuing a pair of car firms whose US parent is being nationalised will be a jolt to anyone who still thought the car industry was ruled by market principles.

The question facing Vauxhall’s 5,000-strong workforce is:  who the hell are Magna? The company, built from a single garage by a colourful Austrian-born entrepreneur named Frank Stronach, is the largest car-parts supplier in North America, yet it has no experience of running a motor company and there is scant detail on what, exactly, it plans to do to the European arm of GM.

The involvement of the Russian oligarch Oleg Deripaska – the man caught up in the Mandelson/Osborne yacht imbroglio last summer – may provide a clue.  Deripaska (an “industrial partner” in the deal) owns the Russian carmaker GAZ and, until he fell on straitened times, had a 20% share in Magna.  The plan he hatched with Stronach in 2007 was to conquer the Russian car market and make headway into Europe and Asia.  Thanks to the deep pockets of Sberbank and the convenient collapse of GM, the plan is back in play.

That may not come as much reassurance to workers at Ellesmere Port and Luton, and matters haven’t been helped by the verbal sparring between the Business Secretary, Lord Mandelson, and union leaders who accuse him of not doing enough to secure a commitment for the plants.  Mandelson will probably stave off significant job losses for now.  But since he has not committed a penny to Vauxhall’s new owners (unlike the Germans, who advanced a 1.5bn euro, bridging loan to secure Opel) his influence is limited.

One might have hoped for better. Imagine the creations of an industrial culture in which somebody fought for British ownership of some of our landmark marques. This is not a protectionist, but a pluralist position:  neither a wholly British-owned nor wholly foreign owned industrial sector is desirable.  You want a mix. If Magna redirects Luton’s van production to Russia and Ellesmere’s car production to Spain and Germany, we will see that ownership matters.

Heathrow bashing has long been an English pastime but it has gained a new shrillness of late. The Daily Telegraph claims, preposterously, that using the airport is more stressful than being mugged at knifepoint; Ken Livingstone accuses it of keeping people almost “as prisoner” in its “ghastly shopping mall”; and even the level-headed City minister Kitty Ussher warns that “Heathrow hassle” is damaging Britain’s competitiveness.

Yet although the Heathrow experience has never been particularly good, it is improving: the Civil Aviation Authority reports that security queues are getting shorter.

Much of the fuss may be down to jingoism following the buyout of BAA, which controls six other airports including Gatwick and Stansted, by the Spanish group Ferrovial last year. But some concerns are justified. Ferrovial borrowed heavily to finance the deal; if it has to pinch pennies to repay the loans, investment may be delayed.

Capital spending on Heathrow has fallen 15% since Ferrovial took over. Even so, the vitriol is overdone. Much of the denigration comes from airlines who stand to profit from BAA’s break-up, but bogus stories of chaos also play into the Government’s hands. If flying is judged intolerable, then ministers have a ready-made justification for their crazy expansion programme.

The excuse is that Britain’s prosperity depends on flying and the ability to offer a shiny international hub. Yet this merely reflects a wider delusion about the role and capacity of a small country.

Flying is not shameful or sinful, as the Bishop of London has implied. There is simply too much of it and the trend needs to change. If exaggerated rage about the misery of Heathrow was refocused on the hellish future of our railways, where subsides are due to be cut, it would be a useful start.

The importance of Heathrow as the gateway to the uncontested financial capital of Europe cannot be exaggerated, and it is nonsense to suggest that the airport is anything but a disgrace. In a recent survey of passenger satisfaction, it came a shocking 56th out of 58 airports.

Matters will be eased by the opening of Terminal 5 but BAA’s real problem is poor management and a corporate culture that sees nothing wrong with treating passengers like cattle.

It was one of the Thatcher Government’s great mistakes to privatise BAA as a single entity rather than sell the airports separately. Time, now, to rectify this error.

Trouble for the tube maintenance firm Metronet has been on its way for almost as long as a delayed District Line train. It has now finally arrived when the contractor responsible for two-thirds of the London Underground network crashes into administration. The bust is clearly bad news for the capital’s beleaguered commuters.

But, as the erstwhile poster-child of the Government’s controversial Public-Private-Partnership scheme, Metronet is also shaping up to be the Prime Minister’s first big embarrassment.

Four years ago, Gordon Brown forced through the part-privatisation of the Tube: partly to take the cost off the state, partly because he thought the network would run more efficiently, and partly to avoid giving too much power to London’s maverick mayor, Ken Livingstone. At least two of those three objectives have come badly asunder.

What went wrong? The answer’s obvious: Metronet was formed from an unholy alliance of arch-privateers – Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water – all expert at extracting money from government without delivering the goods. When costs overran by £2bn, they bailed out like rats.

These PPP chancers seem to want it both ways, to keep the contracts which coin it and to dump those that are less satisfactory. It’s like Railtrack all over again and the chances are that, like Railtrack, the bill will eventually be paid by Taxpayer Anonymous.

Yet the whole point of PPPs, as with the Private Finance Initiative scheme generally, is that the financial risk is transferred to the private sector. If the model is as badly flawed as the Metronet shambles suggests, we’re in serious trouble, since PFI penetrates almost every nook and cranny of life.

In total, 750 deals have been signed with a combined value of £55bn. Of the 68 hospitals completed in the first eight years of the Blair Government, 64 were PFI projects.

Yet it would be foolhardy to write off the whole model on the basis of one fiasco. The majority of PFI projects have delivered well and without them, many important projects would never see the light of day – including the biggest upgrade of the Tube since the Second World War.

If you get the contracts and management right, this system can work – as shown by London Underground’s second PPP contractor, Tube Lines, which has so far incurred no substantial overruns.

In the case of Metronet, the City seems to have run rings round the civil servants. That should be a wake-up call for Whitehall.