The Wilder View

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

Originally published on November 11, 2008 at News N Economics and reproduced here with the author’s permission.

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