Friday, December 12, 2008

European carmakers press for more state aid as job losses loom

European auto industry executives warned today that the collapse of America's Big Three carmakers after the US Senate vote could bring multiple plant closures and the loss of hundreds of thousands of jobs in Europe.

"This is a wake-up call to the EU and governments which should start understanding what's happening around them. It's deadly serious," one said. "This industry suffers first and most from the downturn."

The main manufacturers' lobby, ACEA, is to press the European commission early in the new year to approve support worth even more than the €40bn (£35.73bn) demanded so far.

It is already in negotiations with the European Investment Bank, the EU's in-house lender, to increase the €4bn a year of soft loans so far available to retool the industry for new green technologies.

The European industry is also urging the EC to relax competition rules so that national bail-out schemes - as in France, Germany, Portugal, Spain and Sweden - are approved. Jaguar, now owned by India's Tata, is asking the UK government for aid.

ACEA wants the EU to refuse to sign any deal on global trade liberalisation (the so-called Doha round) or strike a free trade agreement with South Korea that would allow Korean, Indian and Chinese cars to flood EU markets without reciprocal access.

Executives are desperately hoping that the Bush or Obama White House will still cut a deal to rescue the Big Three - General Motors, Ford and Chrysler - despite Thursday night's negative vote in the Senate on a $14bn bail-out.

"If a company like GM, worth 5% of US GDP, goes down, this will be like Lehman Brothers and it will have an absolutely devastating impact not only on the auto industry but on the global economy," Ivan Hodac, ACEA secretary-general, said.

"We expect that there will be another effort to find a US solution and so it's too early to say what the consequences of the Senate vote will be," said Eckehart Rotter, chief spokesman for the German industry body, the VDA.

"But the EU industry needs support both here and in the US provided it doesn't distort competition."

Hodac calculates that the European commercial vehicle market will nosedive by 30% in 2009 when car sales will collapse by 15 to 20%. Some auto analysts say, however, the drop could be as low as 5-10%.

The car industry directly employs 2.3 million in the EU, with up to 12 million more indirectly employed in supporting sectors. The VDA says one-in-seven German manufacturing jobs is in the sector which directly employs 760,000 and 5 million indirectly.

Sergio Marchionne, Fiat chief executive, warned this week that the deep and long recession would leave the global industry in two years' time with just one US producer, one German, one other European-Japanese, one in Japan, one in China and, perhaps another European manufacturer.

Hodac told "We don't know what the repercussions of the US vote will be on employment here. But we're already shutting down plants for extended periods over Christmas, laying off thousands of workers, and, if anything else happens, there will be permanent closures and a substantial rise in unemployment."

Both GM and Ford have a significant presence in Europe where GM's German unit, Opel, is pressing Berlin for up to €1.8bn in credit guarantees over the next two years.

Chancellor Angela Merkel has promised a decision before Christmas.

GM Europe said it was working with unions and governments "to provide liquidity for sustaining operations" and was "aggressively managing down our cost structure".

Calling for a suspension of EU competition rules, Hodac said: "The EC has neither the tools nor the money to help so it'll have to come from national governments. The EC has got to be much more flexible on state aid."

Warning of the impact of free trade deals, he said: "We will go to the barricades on this one. We're not going to be fallguys of signing any free trade agreements."

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