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Free Market Distortion

Germany Fears US Bailout Unfairly Helps Carmakers

The $700 billion bailout passed by US lawmakers on Friday may amount to indirect aid to America's ailing automobile industry, Berlin fears. Even worse, Germans are furious over a $25 billion handout to carmakers made earlier last week.

The German automobile industry is unhappy. Twice in the last week, the United States government has reached deep into the American pocketbook in an attempt to shore up the country's economy. And both times, struggling US carmakers have been the beneficiaries. According to information obtained by SPIEGEL, the government in Berlin is concerned that fair competition in the automobile industry may have been compromised.

On Friday evening, the US House of Representatives agreed, after numerous modifications and a second vote, to a $700 billion bailout package intended to shore up confidence in the US financial markets. The wording of the deal, however, makes it possible for the US treasury to buy all sorts of troubled loans, including car loans and inventory loans to car dealerships.

Such indirect assistance could skew the playing field in favor of the US automobile industry, the German government fears. Indeed, General Motors head Rick Wagoner even cancelled his appearance at the influential Paris Motor Show so he could lobby for the bailout package in Washington D.C., according to the BBC. According to SPIEGEL, the German government is concerned that up to €50 billion ($67.8 billion) may end up going to prop up American carmakers.

Last Tuesday, though, Detroit became the beneficiary of government assistance that was much more direct. US President George W. Bush signed into law a low-interest loan plan that makes €25 billion available to carmakers to help their transition to manufacturing cars and trucks that are more fuel efficient. The idea is to provide government assistance to ensure that carmakers can meet stricter US gas mileage regulations, which require vehicles to get 35 miles to the gallon (6.7 liters per 100 kilometers) by 2020. Estimates as to how much the transition to greater fuel efficiency is going to cost range as high as €100 billion.

General Motors Chief Operating Officer Fritz Henderson told the BBC that "it's a loan actually. It's not a gift. It's all about financing projects."

German auto industry executives, though, see things differently. "We are opponents of subsidy contests," Matthias Wissmann, head of Germany's VDA automobile industry association told the automobile magazine Motor Trend in late September when the bill was making its way through Congress. "That results in a distortion of competition…. In the manufacturing industry, one should leave things to the free market," added Anton Weinmann, CEO of German truck maker MAN, likewise speaking to Motor Trend.

Europe too has recently upped environmental standards for automobile manufacturers. But instead of offering state aid to help companies with the transition, governments in Europe have been content to threaten fines if the car and truck industry doesn't respond.

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