Meltdown 101: Car Sales slump Spurs Global Bailout
By: manybanking.com Staff

By Dan Strumpf
NEW YORK (AP) — With auto sales in free fall as consumers put the brakes on big purchases, General Motors Corp. and Chrysler LLC want a total of $39 billion in U.S. government loans to keep them operating. But it's not just Detroit asking for help.

Vehicle sales have collapsed around the world, prompting six European countries to prop up their domestic automakers with state aid. The Canadian government is mulling a bailout of GM and Chrysler's Canadian operations. China has taken steps to boost demand for vehicles, and even mighty Toyota Motor Corp. has sought help from a government-backed bank.

Here is a look at how some of the programs compare:

Q: How much is the U.S. government lending its auto industry, and how does that differ from what other governments are doing?

A: So far, General Motors has received $13.4 billion and Chrysler LLC has received $4 billion from the U.S. government. Last month, they asked the government for another $21.6 billion, and the Obama administration is expected to give them an answer by the end of March. The other major U.S. automaker, Ford Motor Co., has not sought government funding.

No other nations have indicated they are willing to spend that much on their automakers, but they are using a variety of programs to help the industry, including loans to the companies and consumer incentives that would stimulate sales.

Q: How is Europe trying to rescue its carmakers?


A: European carmakers are set to receive two tiers of aid. The first will come next month from the EU, when the European Investment Bank will shuttle 3.8 billion euros ($4.9 billion) in low-interest loans to Europe's automakers. Those loans will fund retraining programs, greener cars, incentives to scrap old vehicles, research and development, and other initiatives.

On top of that, France, Britain, Spain, Germany, Italy and Sweden have all proposed their own multibillion-dollar aid packages. The European Union's antitrust chief has been reviewing the plans to make sure they do not give any carmaker an unfair edge over rivals elsewhere.

Sweden, for example, has presented a 28 billion kronor ($3.3 billion) support package to help its automakers, Volvo and Saab. France's plan calls for 7 billion euros ($9.1 billion) in loans for PSA Peugeot Citroen and Renault SA. And in Spain, GM's Opel division has already received a 200 million euro ($259 million) loan guarantee from the provincial government of Aragon to help build a new minivan in Zaragoza.

Besides direct aid to companies, the German government introduced a program that gives people 2,500 euros ($3,252) if they scrap aging cars and buy new ones. The Italian government approved a similar program that provides 1,500 euro payments, and Italian automaker Fiat Group SpA said that was enough to cancel planned factory shutdowns affecting more than 8,000 workers.

Q: But Saab and Opel are owned by GM. If GM's foreign units receive state aid, does that mean GM will need less help from U.S. taxpayers?

A: No. Each request for state aid is restricted to that particular country, said GM spokesman Tom Wilkinson. That means any money that, say, Saab gets from the Swedish government can only be used to fund Saab's operations in Sweden. Any financial help it gets has no bearing on GM's funding request to the U.S. government.

By the same token, any money GM receives from the U.S. government is strictly earmarked for use in the U.S.

Q: Are Japanese automakers receiving state aid?

A: While Japanese car companies like Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. are in better financial shape than their American counterparts, some have sought help from their government, though indirectly.

Toyota's financing unit is in talks with a government-backed bank in Japan to get loans to help finance its lending activity. Japanese media have reported that Toyota Financial Services has asked for 200 billion yen ($2 billion) from the Japan Bank for International Cooperation, though the automaker has not publicly discussed the amount sought.

Nissan also has said that it is considering various types of government aid, but it declined to say whether it, too, was requesting aid from the Japan Bank for International Cooperation.

Q: Chinese automakers are gaining strength. Are they also getting bailed out?

A: The Chinese government is already a great deal more involved in its auto industry than the U.S. government. Many Chinese carmakers are state-owned, and the government recently stepped up efforts to spur vehicle sales, which have cooled after several years of roaring growth.

On Monday, the Chinese government detailed a plan to reimburse farmers up to 5,000 yuan (about $730) on purchases of light trucks and minivans. GM joint venture SAIC-GM-Wuling will likely be one of the biggest beneficiaries of the plan.

Earlier this year, China slashed the sales tax on small-engine passenger cars in a bid to boost sales of fuel-efficient vehicles. The effort appears to have paid off: Chinese auto sales surged 25 percent in February, marking the second month in a row that sales there outpaced those in the U.S.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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