The Bailout Beat German Auto Industry Seeks Government Help

As the US moves to bail out its own auto industry, German automakers fear they will be left behind. They are demanding a similar package in Germany and may also seek aid in the US for German carmakers active on the American market.

A day after the United States Congress passed a $14 billion (€10.7 billion) bailout of the American auto industry, carmakers in Germany are hoping to receive similar support, both from European governments and possibly from the US fund.

In an interview given to the Berliner Zeitung newspaper, the president of the German Association of the Automobile Industry (VDA), Mattias Wissmann, pointed to competitive concerns in pleading for state aid for German auto manufacturers. Responding to the US bailout plan, Wissmann said "what's important for us is that all of those who produce in America -- not just American firms -- are treated the same way."

Lord, please save Ford: A pastor prays for the future of the American auto industry during a service in Detroit, Michigan.

Lord, please save Ford: A pastor prays for the future of the American auto industry during a service in Detroit, Michigan.

Fearing the consequences of a bailout benefiting only American-owned firms, Wissmann added that "competitive distortions must be avoided." German producers currently hold a 7.2 percent share of the US auto market, with the majority of those vehicles manufactured on American soil.

Wissmann also called upon the European Union to extend €20 billion to €40 billion in low-interest loans to European auto manufacturers to help promote the development of environmentally-friendly vehicles. Wissmann said he wants Germany to be "the world leader" in the production of fuel-efficient cars, and that given the tough credit market, EU loans would help to "force" the development of environmentally friendly technology. In 2007, amid much healthier economic conditions, the EU extended the auto industry €7.2 billion in low-interest loans.

Tough Times for German Auto Makers and Suppliers

Wissman's request for government help comes during a week of troubling news from the German auto sector. On Monday, the financial services arm of VW said it would apply for loan guarantees through the German government's €500 billion bank bailout program. On Monday, auto giant Daimler announced it was shortening its work week to four days -- and at some plants only three -- from January 12 until at least March 13. Wolfsburg-based auto maker VW had previously announced it would suspend production at its hometown plant for three weeks starting on Dec. 18.

The German auto industry fears that an auto bailout in the US could put German manufacturers at a competitive disadvantage.

The German auto industry fears that an auto bailout in the US could put German manufacturers at a competitive disadvantage.

But the real trouble is coming from auto suppliers, many of whom are heavily exposed to the ailing US car market. On Monday, auto supplier TMD Friction filed for bankruptcy protection in Cologne. And on Wednesday, Hamburg-based tire manufacturer Continental lowered its earnings forecasts and announced it would not pay dividends to shareholders in 2008 or 2009. Tedrive, another supplier, was reported to be preparing bankruptcy papers.

In total, 15 separate auto suppliers have applied for emergency loan guarantees from the auto-heavy west German state of North-Rhine Westphalia. The state has already made €900 million available for auto suppliers, and is setting aside a further €1.1 billion in anticipation of more requests.

Fears of a Bailout Race

Not everybody is happy about the bailout negotiations being floated on both sides of the Atlantic. Willie Diez, director of the Institute for Automobile Economics, responded to the news about the US bailout by telling the Berliner Zeitung that "the race for subsidies has commenced." Diez worries across-the-board government subsidies will "prevent" the industry from undertaking "necessary adjustments."

"Merkel and Sarkozy should travel to the US to discuss how we can prevent a reciprocal overbidding (of aid)," said Diez. Although he acknowledges that a collapse of the American auto industry would hurt German suppliers in the short term, "in the long term," he believes, "Germans would benefit."

Of course, any talk of an American bailout is still extremely premature. Although a $14 billion bill passed through the House of Representatives on Wednesday, it enjoys little support from Republicans in the US Senate, which will have to ratify the bill before it can take effect.

Senator Richard Shelby, a Republican from Alabama, called the bailout bill a "travesty" on Wednesday and threatened to filibuster it. If he makes good on his threat, the bill would have to receive 60 votes in the 100-seat chamber to ensure passage. The Senate Minority Leader, Republican Senator Mitch McConnell, told reporters "the votes aren't there" to prevent a filibuster.

cpg -- with wire reports


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