Friday, November 21, 2008

The car industry: Pass the plate

If Detroit’s disintegrating carmakers are bailed out, Europe’s will be next in line

IT IS not just in Washington, DC, that a fierce debate is being conducted about whether to provide state aid to the beleaguered car industry. On Tuesday November 18th, just as the bosses of General Motors (GM), Ford and Chrysler were lining up with their begging bowls before the Senate banking committee, the directors of the European Investment Bank, the European Union’s lending arm, were considering whether to give Europe’s carmakers €40 billion ($51 billion) in soft loans. The previous day, the German chancellor, Angela Merkel, had met executives of GM’s European subsidiary, Opel, to discuss guaranteeing a €1 billion liquidity line in the “worst case” of its parent company in America going bankrupt.

Despite the appearance of similarity on both sides of the Atlantic, however, there are big differences. For one thing, the plight of the Detroit Three is much more urgent. GM’s boss, Rick Wagoner, told the senators that the economy faced “catastrophic collapse” if bridging loans were not quickly made available. He gave warning that by the end of the year, GM might not have enough money to pay its bills. Ford’s cash position is stronger—company insiders reckon that it might just be able to scrape through on its own resources—but its chief executive, Alan Mulally, was not on Capitol Hill just for the ride. He fears that if either Chrysler or GM (particularly the latter because it is so much bigger) were to fail, the impact on the parts suppliers on which all three firms depend could bring down Ford as well. ...


[Source: The Economist: News analysis - Posted by FreeAutoBlogger]