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A conveyerbelt at an Opel factory
A collapse in the US auto industry could bring the global industry to a haltImage: picture-alliance/ dpa

Auto Bailout Ramifications

DW staff (dfm)
December 12, 2008

The aftershock of the rejection of the $14-billion bailout of the US auto industry hit carmakers' shares in Europe and the US, but uncertainty is still rife as to the long-term consequences for the European car industry.

https://p.dw.com/p/GEzs

The European subsidiaries of the US "Big Three" -- General Motors, Ford and Chrysler -- remain determined to seek government support to combat the combined impact of recession and a consumer credit crunch.

Opel, which is owned by GM, was not affected by the failure of the US auto bailout, but is nonetheless counting on funding guarantees from the German government to help it endure the current economic downturn.

The German government has told Opel that any financial assistance comes with the non-negotiable requirement that the funding not find its way back to parent company GM, which has warned it faces a total collapse without US government assistance.

A fear is that if one of the Big Three goes bankrupt, it could have irreversibly negative consequences for the global auto industry.

"If one of the big auto companies goes bust in the US, this could see a collapse in the entire supply chain," said Heino Ruland, a strategist at Frankfurt Finanza.

'Too early to tell'

Logo VW, BMW, Opel, Audi, Mercedes
Most German carmakers' shares were hit when the US auto bailout was rejected

German auto industry association VDA said there was still a chance the US Senate could readdress the auto bailout package.

"Therefore it is premature to speculate about the actual consequences for German carmakers and their suppliers," the association said.

"Today, the main thing is the uncertainty around the auto industry and whether or not it will go bust," said Bernard McAlinden, strategist at NCB Stockbrokers, as quoted by news agency Reuters.

Nonetheless, worries over GM saw the company's share price in Frankfurt drop 37 percent by midday Friday, Dec. 12.

Shares in BMW were down 4.14 percent, Volkswagon dropped 2.18 percent and Daimler shed 7.93 percent.

Parts suppliers fearful of slump

A Romanian worker assembles an engine for Dacia Logan cars
Car parts producers are having liquidation problemsImage: AP

Concerns were also stoked in the European auto parts industry as carmakers experienced slumping sales due to low-consumer confidence and the credit crunch.

This decreased demand has led to German automakers such as Opel, Daimler, BMW and VW cutting or considering cutting output levels, which means parts suppliers could be hit hard further down the chain.

To add to their woes, auto industry companies such as parts producers have been reclassified by banks as high-risk loan applicants, further drying up cash flows and increasing the possibility of redundancies.

"The outlook is like this: nobody knows what is going to happen … but we think we will produce 30 or 40 percent less next year compared to this year," said Elmar Holzaepfel, whose company Eugen Klein Gelenkwellen makes drive-shafts for truckmakers MAN, Iveco, DAF and Daimler.

In Germany, around one in five in the workforce is employed either directly or indirectly in the auto sector. The car parts industry is a key link in this chain, without which millions of jobs would be at stake.

"If the supply chain breaks, that will have a dramatic impact on the whole automotive industry in Germany and the employees in this key sector," VDA President Matthias Wissmann said. "The risk is growing every day -- this is now the eleventh hour."

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