Carmakers plead for EU subsidies

European automobile manufacturers are calling on the European Commission to follow in the footsteps of the US and provide them with billions in low-cost loans to help them develop environmentally friendly vehicles as global car sales drop.

The call was voiced by a number of high-level industry representatives at the Paris Motor Show, which opened last Thursday (2 October) and followed the adoption by the United States last week of a $25 billion package of low-cost loans to help Detroit-based carmakers General Motors, Ford, and Chrysler to finance plant modernisation. 

“The US industry is now getting $25 billion worth of support in terms of financing […] It would be absolutely necessary for the European Commission to do exactly the same thing,” Fiat CEO Sergio Marchionne told Bloomberg, adding: “It was $25 billion for the US. In our case it’s €40 billion because we have twice the capacity.” The industry is expected to present more details of its aid request today (6 October). 

European automakers’ support for an EU version of the US scheme is said to be “absolutely 100% unanimous,” with Renault CEO Carlos Ghosn saying the US initiative was “a smart decision to achieve long-term objectives,” stating his belief that “other governments should take inspiration from it”. “It is not just an incentive, it lays down the financial means to get the job done,” he said. 

The passage of the US bill was likely facilitated by the credit crunch that is currently squeezing the American economy, as well as by bi-partisan desire to please the electorate ahead of the November presidential poll. 

Indeed, the financial crisis is expected to worsen an already bad situation for both American and European carmakers, which have seen sales plummet in recent months. According European carmakers’ association ACEA, European registrations of new cars fell by 15.6% in August compared to the previous year, as drivers put off big purchases amid fears of job losses, inflationary pressure, soaring fuel prices and tougher credit restrictions. 

But despite these difficult times, the car industry’s pleas are likely to fall on deaf ears in Brussels, where no mechanism exists for paying out such large sums to industry and which tends to have an aversion to sectoral state aid. 

In fact, rather than seeking to support carmakers, EU legislators are currently preparing strict environmental regulations that would force manufacturers to invest heavily in motors that emit less CO2 (see ‘Background’). 

“On the one hand, the industry is hurting from the credit crisis. On the other hand, the industry is facing the prospect that complying with the new legislation on emissions is going to cost a lot of money,” said ACEA Secretary General Ivan Hodac, who estimates that the planned legislation will cost industry as much as €25 billion. 

Marchionne described the EU plans as “nonsense”, commenting: “You can’t pile regulation on an industry during its worst time in the last 10 years.” 

But the Commission has questioned the cost assumptions used by carmakers, with environment spokeswoman Barbara Hellferich insisting that the auto industry can deliver on the EU targets “at a reasonable cost,” according to the International Herald Tribune. 

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