147030 3/24/2008 16:04 08BUCHAREST237 Embassy Bucharest CONFIDENTIAL 07BUCHAREST793 VZCZCXRO2980 PP RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR DE RUEHBM #0237/01 0841604 ZNY CCCCC ZZH P 241604Z MAR 08 FM AMEMBASSY BUCHAREST TO RUEHC/SECSTATE WASHDC PRIORITY 8095 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RHEHNSC/NSC WASHDC C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000237
STATE FOR EUR/FO - JGARBER NSC FOR ASTERLING
E.O. 12958: DECL: 03/24/2018 TAGS: EINV, ECON, PGOV, PREL, RO SUBJECT: FORD RETURNS TO ROMANIA AFTER 60 YEARS
REF: A. 2007 BUCHAREST 793
B. 2007 BUCHAREST 1063
Classified By: CDA Mark Taplin for reasons 1.5(b) and (d).
1. (U) SUMMARY. Ford Motor Company and the Government of Romania formally completed Ford's takeover of the Automobile Craiova autoplant at a ceremony on March 21 involving Prime Minister Calin Popescu-Tariceanu and ranking Ford Europe officials, along with President Traian Basescu and the Ambassador. The handover followed closely on the heels of a European Commission state aid investigation that identified 27 million Euro in "inappropriate" state aid to Automobile Craiova. The deal marks the largest ever U.S. industrial investment in Romania by far and represents a big step forward in our growing bilateral economic relationship. The Ford Motor Company is returning to Romania after a more than 60-year absence, having manufactured automobiles in Bucharest before World War II. END SUMMARY.
2. (U) Ford Motor Company and the GOR marked the conclusion of the sale of the Automobile Craiova autoplant at a March 21 ceremony in Craiova attended by PM Tariceanu, Ford of Europe CEO Jon Fleming, President Basescu and the Ambassador. PM Tariceanu, the foremost Romanian champion of the deal, underlined that Ford's investment is transforming Romania into "the most important car manufacturer in Southeast Europe," pointing to the positive ripple effects on the Romanian economy that will ensure. President Basescu thanked Ford for "giving this chance to Romania" and for "investing its trust in Romania and in the people of Craiova."
3. (SBU) Ford's takeover, originally scheduled to be completed by the end of 2007, was delayed several months following the opening of a European Commission investigation in October 2007 into the terms of the privatization. Ford and the GOR worked around the clock to respond to Commission investigators and PM Tariceanu actively lobbied the Commission to reach a speedy conclusion. After a four-month inquiry, record-setting in its speed by some accounts, the Commission found the conditions the GOR had imposed on the sale (e.g. ensuring a certain production and employment level, sourcing a significant percentage of inputs on the Romanian market) to be inconsistent with the EU acquis and to have potentially lowered the final sale price. The EC ruled that the GOR must recover 27 million Euro from Automobile Craiova. While neither Ford nor the GOR agreed with the conclusion, both parties were pleased that the investigation was concluded in an expeditious manner, far more rapidly than the 18 months initially predicted by the Commission.
4. (U) Ford's final purchase price is 57 million euros for the 72.4 per cent stake in Automobile Craiova owned by the state. The company has committed to technological and environmental investments worth 675 million euros to upgrade the facility and increase output to 300,000 cars, up from the current 200,000 cars installed capacity to date. Ford also intends to maintain the current engine output of 300,000 units per year. According to Ford, up to 90 per cent of vehicle production and 70 per cent of engine production will be exported, mainly to other European countries. According to Fleming, Ford of Europe's seven manufacturing facilities are currently operating at 100% capacity. The Craiova facility, to be christened Ford Romania, will enable Ford to expand its European presence to over 2 million units per year. The first Craiova-built Ford vehicle will come off the production line around the middle of 2009.
5. (U) Ford's investment in Craiova marks a return to Romania after over 60 years. The Ford Motor Company originally entered the Romanian market in 1931, and began manufacturing at a plant in Bucharest in 1936. The plant continued to manufacture automobiles and trucks until the outbreak of World War II. Romania's Soviet-dominated postwar regime nationalized the facility in 1946. Thus Ford's return is not without symbolism as Romania continues to make rapid progress emerging from the economically and socially devastating years of Communist rule.
6. (C) Ford's investment in Craiova marks the largest American investment to date in Romania's manufacturing sector. While much of the focus in the U.S.-Romania bilateral relationship has rightly been on our close defense and security partnership, U.S. investments over the course of the last four years have dramatically increased. For those politicians who had questioned how Romania would benefit
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economically from its close ties to Washington, the Ford investment is a strong riposte. Still, few occasions in Romania are immune to the local gamesmanship. While both the President (a last-minute addition to the ceremony program) and the PM stressed the significance of Ford's investment, they could not restrain themselves from publicly sparring over a disputed car tax on automobiles, accusing each other of acting to protect their own or their financial backers' interests. Even though much of the local media coverage centered on the two men's inelegant dust-up on national TV, the importance of the Ford Romania deal for Romania's economic future and for our bilateral relationship nevertheless was the real story of the day. TAPLIN