Tuesday, November 11, 2008

Bring out your dead: European and U.S. auto industry bailouts

If the U.S. jumps off the bridge, will Europe follow? I guess that when it comes down to bailing out various production sectors - finance, auto - they will. From Deutsche Welle:
"Euro zone leaders say they are working together to coordinate an aid package for European carmakers hit hard by the financial crisis.

Luxembourg's Prime Minister Jean-Claude Juncker, who heads the group of 15 countries that use the euro, said Monday, Nov. 10, that efforts to defend Europe's car industry would resemble in some way the expected US approach to its own auto sector crisis.

European governments "can't avoid seeing what the Americans are doing" and could not afford to let Europe's automobile sector "disappear," Juncker told Radio France Inter.

Calls for subsidized low-cost loans

The efforts come as German carmakers look to Chancellor Angela Merkel's government for signs it will provide further relief for its embattled auto industry.

German carmaker Opel has asked for tax incentives for new car purchases, the introduction of low-cost consumer loans and a bonus for taking cars more than 10 years old off the road.

The automaker said around $52 billion (40 billion euros) would be needed to set up and finance the low-cost consumer loans which could be managed by the European Investment Bank.

The requests were made only a week after the German government said it would implement a series of support measures including cancelling the road tax for new car owners for one or two years.

"The measures presented are a first step but are not enough to underpin demand for new cars by families with weak or modest incomes," said a letter sent Friday by Opel chief Hans Demant, works committee head Klaus Franz and General Motors (GM) Europe boss Carl-Peter Forster."

RW: It doesn't get more "moral hazardy" than this! You bail out one, you bail out them all. Why in the world should the German government underpin demand for new cars? On a similar note, see a great article by Yyves Smith at Naked Capitalism, Where's My Bailout? The Feeding Trough May Not Be Bottomless, After All

Rebecca Wilder


  1. Not that I defend a decision to bail out the auto makers but, it also means saving the suppliers of tires, spark plugs, etc., a whole bigger chunk of companies and people. I do wish the powers that be would allow a company like Chrysler to fail especially since we've bailed them out once before. Europe is bound to follow suit just to level the playing field. Wait for Japan to do something, too. Korea will have a hard time coming up with any help for their auto companies.

  2. Wednesday, October 29, 2008

    "“It simply beggars belief that the car lobbyists now come cap in hand "

    This is getting hilarious. Check this out, from the FT:


    "European carmakers could get up to €40bn ($52bn, £31bn) in “soft loans” from the European Investment Bank to the industry to help develop more fuel-efficient technologies, a top EU official said on Wednesday.

    Günter Verheugen, industry commissioner, said that loan subsidies could be provided through the EIB in an effort to develop greener cars and meet EU environmental targets, although he pointed out that it was ultimately a matter for the bloc’s member states and the EIB to decide."

    Car makers asking for cushy government loans because of problems complying with environmental standards. Did we export this too?

    "The €40bn low-interest loan package is one of a number of measures being pushed for by European carmakers, who claim to be facing a particularly challenging environment in the wake of the credit crunch and economic downturn."

    Hey, did you know that's happening in the U.S. as well?

    "Several environmental groups blasted the automakers on Wednesday, accusing them of seeking subsidies to comply with measures they have repeatedly resisted. “It simply beggars belief that the car lobbyists now come cap in hand to the European Union asking for handouts to develop the fuel efficient cars they should have built long ago,” said Jos Dings, directors of Transport & Environment, a pressure group.

    But industry officials argue that they have already been making substantial investments to improve their fleets, and will need assistance to continue them at a time when their market is collapsing."

    What do you know? Where have I heard this before?

    Don the libertarian Democrat

  3. Hi Don,

    Thanks for the article – it looks very much like an article I saw in FT 1.5 months ago: http://www.ft.com/cms/s/0/83bfe68c-8a8f-11dd-a76a-0000779fd18c.html

    “It simply beggars belief that the car lobbyists now come cap in hand to the European Union asking for handouts to develop the fuel efficient cars they should have built long ago,”

    I totally understand that American drivers are FINALLY changing their behaviors, but it seems to me that oil and gas prices will not stay down forever, and there will be profits for those who survive. I remember going to the Honda dealership in 2006 to buy a civic – couldn’t get it in the color that I wanted, and frankly, the dealer didn’t care. He could sell any car off of that lot because all anybody cared about was fuel efficiency. Those who made smart business decisions (i.e., started retooling early – Honda, Toyota, Subaru) will survive, while those who didn’t (GM, Chrysler) won’t. Look at the Prius: a few months ago, they probably couldn’t stay on the lot.

    Thanks for reading and thanks for the article!