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GM's Opel requests help

2008-11-17 07:21

Milan/Frankfurt - Europe's ailing auto industry looked to slash output further after dire October sales sent the market tumbling to its lowest level in years and forced GM's Opel unit to ask German taxpayers for a billion-dollar bailout.

A report that European firms had dropped insuring suppliers of troubled General Motors Corp and Ford Motor Co , along with the U.S. carmakers' ongoing attempts to expand government aid to the sector, provided compelling evidence of the dire financial health of the once proud "Big Three".

Effectively acknowledging it could no longer rely on its Detroit parent to help it, GM's German unit became the first European carmaker to request financial guarantees from state authorities to keep its business running.

"The funds and guarantees that may be required would be invested in product development and manufacturing sites in Germany and would by no means be spent outside of Europe," Opel said in a statement, thanking politicians for their support.

Talks with Berlin were slated to begin this week, with governments in states with major Opel assembly sites like Hesse declaring their willingness to examine the request after Opel's management told them the company was facing an "existential" threat should conditions at GM deteriorate further.

Hesse's conservative caretaker premier Roland Koch told a news conference in Wiesbaden that the total volume of the guarantees Opel needed was 1 billion euros ($1.27 billion), two thirds of which would be provided by the federal government.

Car sales have fallen dramatically as the global financial crisis has gathered steam, and carmakers are frantically trying to keep up with the declines in the market by slashing costs where possible and extending the usual plant idling over Christmas by a few more weeks to save cash.

In western Europe, new car registrations in October plunged 15.5 percent to just over 1 million vehicles, dragged down by extremely poor results at the Peugeot , Opel, Renault and Toyota.
"On a seasonally adjusted basis the annualised rate in October was 12.3 million vehicles, making it not only the worst month easily this year but the worst since 1996," industry consultant J.D. Power's Pete Kelly said.

While he expected steep monthly drops to begin bottoming out gradually, that would not save the market from contracting in 2009 by a good 17% from last year's level.

"This forecast is consistent with an economy moving into full recession," Kelly said.

More cutbacks

Europe's blue-collar workers woke up on Friday to a market that is shrinking faster than carmakers can yank vehicles from the assembly line, threatening their livelihoods after employers have already axed temporary staff.

France's Renault reported that a 14.1% drop in global sales in October would make it throttle back production in the second half to reduce the value of unsold new and second-hand cars by 13% by year's end.

German labour leaders at Daimler said management planned to reduce output of its Mercedes-Benz luxury cars by far more than 80 000 units, cut the work week to 30 hours and offer severance packages, after calculating it had 5 800 more staff on its payroll than needed.

Daimler had no immediate comment, but CEO Dieter Zetsche, in an interview with mass-market daily newspaper Bild on Friday, did not rule out job cuts.

In a further sign the malaise was spreading to every corner of the developed world, Nissan Motor said its factories in Japan would churn out 72 000 fewer cars by next March, more than doubling its overall production cuts.

The prospects of European and Asian car makers have yet to sink to the desperate levels of their US peers, however.

With their futures at acute risk, General Motors and Chrysler renewed lobbying efforts in Washington to extend the $700 billion U.S. financial bailout to Detroit's crumbling auto industry.

Democrats in Congress are already pressing for the government to commit more than just the planned $25 billion in low-interest loans tailored for the Big Three by offering handouts from its Troubled Asset Relief Programme (TARP), worrying many in Europe this would give the companies an unfair competitive edge.

The European Commission, which has given symbolic support to calls from its own industry for 40 billion euros in affordable government funds, said lawmakers in Brussels would be watching any such moves in the United States closely.

Takeover target?

"If it is illegal state aid, we will act at WTO level," Commission President Jose Manuel Barroso told Europe 1 radio.

The Financial Times reported sources saying Euler Hermes, Atradius and Coface -- which together control more than 80% of the world's credit insurance market -- were no longer writing policies protecting suppliers trading on credit with GM and Ford against a default on payments outstanding.

Atradius said it did not comment on individual companies but added in an emailed statement: "The current economic environment is tough, and car manufacturers are among those being hit by the financial slowdown. We are pulling back cover in some cases as an absolute last resort."

Brussels-based auto industry association ACEA underlined the gravity of the situation after publishing data that showed new car registrations in western Europe fell 6% since January to 11.9 million vehicles, the lowest figure since 1997.

Among new EU member states in eastern Europe, once a prime source of growth, October registrations fell over 3%.

Investors were no longer moved by the bad news for the European car industry, having already sent share prices to their lowest levels in years. The DJ Stoxx European auto sector index closed down by just 0.8% on Friday.

Share prices have fallen so much that it has prompted renewed takeover talk concerning Daimler, the last major carmaker without a controlling shareholder, but CEO Zetsche said he wasn't worried because credit markets had frozen.

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