No Christmas gravy for Europe’s ailing carmakers

By Nicholas Rigillo, DPA,

Brussels : Ah, the style of an Italian Ferrari, the solidity of a German Mercedes, the flair of a French Renault!

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The car industry is not only Europe’s pride and joy, it provides income for some 12 million families and last year generated a combined turnover of 551 billion euros ($700 billion), or about 5 percent of the continent’s gross domestic product (GDP).

One in every three cars sold around the world is European.

But now, caught between the global credit crunch, a recession and the need to make greener vehicles, Europe’s automobile industry says it is facing its most difficult moment since the oil crisis of the early 1970s.

Sales have shifted into reverse since the spring, and the European Automobile Manufacturers’ Association (ACEA) is predicting layoffs of up to 5 percent of the industry’s continental workforce.

Manufacturers are appealing for help. All indications are that they won’t get all they want.

One demand from ACEA is for more schemes similar to what Italy did to help save Fiat – state-subsidized discounts for people who trade in their old bangers for new, less-polluting models.

Another involves 40 billion euros in cheap loans to help develop fuel-efficient technologies.

Luxembourg Prime Minister Jean-Claude Juncker, one of the European Union’s most influential figures, on Tuesday joined top officials from France and Germany in calling for a European-wide rescue plan similar to the one being considered by US President George W Bush.

“If the US administration is prepared to spend billions of dollars to save Ford and General Motors from collapse, then we cannot simply look on and abandon our manufacturers in Europe,” Juncker told the German tabloid Bild.

Officials in Brussels say the European Commission is working on a range of short-term measures which should help the industry head off recession.

But they caution industrialists against raising their expectations too high.

The European Investment Bank (EIB), whose task it would be to provide carmakers with low-interest loans, has dismissed the 40-billion-euro demand as “fantasy”.

Spokesman Rainer Schlitt told DPA that the EIB has already loaned 7 billion euros to car manufacturers over the past 12 years.

The 40 billion euros that carmakers seek would be only five billion short of the total amount of cheap credit that the EIB provided across all EU industries in 2007.

While France’s PSA Peugeot-Citroen and Renault and Germany’s Daimler are among those that suffered the greatest drop in sales in October, Europe’s biggest headache concerns Opel, GM’s German subsidiary.

German Chancellor Angela Merkel has said she is considering a request for credit guarantees to help Opel overcome a possible liquidity crisis due to the massive cash shortages being experienced by its US-based parent company.

But Schlitt said the EIB would only be able to finance research and development projects, not “Opel-style” aid.

Commission head Jose Manuel Barroso has also said he wants to help. But he is also threatening to refer the United States to the World Trade Organization (WTO) over Washington’s plans to bail out its own ailing car industry with subsidies worth $25 billion.

One of the problems facing the likes of Opel is that the EU has very strict rules on what kind of state aid governments can provide to their industries.

“Member states cannot export their problems to other member states,” said Jonathan Todd, spokesman for EU Competition Commissioner Neelie Kroes.

“You should not have a situation where a subsidy received by one company puts another company in another member state, or in the same member state, at risk,” Todd said.

This means governments cannot bail out a specific carmaker, and that any help to the industry should be agreed with other EU car-making nations.

And while Opel is clearly suffering from the effects of the global credit crunch, officials also reject any comparison with the banking industry, which has enjoyed credit guarantees and aid totalling some 1.5 trillion euros.

“If banks collapse, the economy collapses,” one official said, while the bankruptcy of a single car manufacturer would not jeopardize a country’s entire economy.

Thus, Europe’s carmakers can still expect billions of euros in state aid. But this will likely be spread over a number of years and will mostly be targeted at research and development projects that lead to more fuel-efficient, less-polluting cars. And that aid will almost certainly not boost car sales this Christmas.