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China next to bail out carmakers?

2009-01-13 06:49

Shanghai/Detroit - China posted a sharp slowdown in 2008 auto sales growth on Monday, as a source told Reuters that China would join the United States and European countries in offering aid for its automakers.

Shrinking demand which threatens the survival of several makers set the stage for the Detroit auto show, the industry's biggest event, which opened on Sunday.

The Chinese numbers added to the gloom as its autos market, hot in recent years for Chinese and Western brands alike, posted 2008 sales growth of 6.7%.

That was down from more than 20% in each of the last three years, the official Xinhua news agency reported.

A source told Reuters that China, like the United States and European countries, was examining an aid package for carmakers.

"The National Development and Reform Commission together with other departments came to a basic agreement about details for the auto and steel plans last week, and these will be discussed at a State Council meeting this Wednesday," the source told Reuters.

"If approved, they will be announced and implemented very soon."

Governments worldwide are being forced to study aid packages for automakers, in part because of the sector's impact on the wider economy.

Under a $17.4 billion US federal bailout, General Motors Corp and Chrysler are mandated to cut labour costs.

Ford Motor Co chief executive Alan Mulally speaking at the Detroit event said that the company did not for the time being expect to have to use a $9 billion credit facility from the government.

GM and Ford are also pushing to shed loss-making Swedish units Saab and Volvo.

GM Vice Chairman Bob Lutz, who heads up the top US automaker's product development efforts, said Saab had been a drain on GM for years.

"Frankly they've been on GM life support," Lutz told reporters in Detroit.

Europe to deteriorate

Brokerage Goldman Sachs said on Monday that operating conditions for European carmakers would continue to deteriorate, and it further reduced its forecast for sector sales and production in 2009.

Top-ranked European maker Volkswagen eked out a 0.6% rise in 2008 group sales on Sunday but warned sales could slide by about 10% in 2009.

French Economy Minister Christine Lagarde said she would consider strengthening the capital of France's battered carmakers if necessary.

Lagarde said topics to be examined at a meeting set for January 20 include financing of car credit, reinforcing carmakers' capital if necessary and structural changes.

German Chancellor Angela Merkel told HR-Info radio on Monday that state help was also possible for Opel, a German unit of GM, as part of a planned new fund for struggling German firms.

China's proposals include reducing or abolishing a 10% tax on vehicle purchases and incentives for developing cleaner cars, according to state media reports.

China's biggest automaker, SAIC, owns a 51% stake in South Korean sports utility vehicle maker Ssangyong which filed for bankruptcy protection last week.

Unions at Ssangyong said on Monday they had won membership backing for a strike.

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