Bridges Weekly Trade News Digest • Volume 12 • Number 39 • 19th November 2008
EU Scrutinises US Auto Industry Bailout Proposals
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Two competing US$25 billion packages aimed at bailing out the US auto industry have been under debate in the US Congress this week, but the EU has threatened to take international action if the package that emerges contravenes international trade law.
If the successful proposal includes state aid that violates Washington’s world trade commitments, the EU will likely challenge the suspect measures at the WTO, European Commission President Jose Manuel Barroso said last week. WTO trade law dictates the level and type of support that countries are allowed to grant their domestic producers.
But European governments are also under pressure to support their financially troubled auto industries amid job-loss fears.
German Chancellor Angela Merkel is set to meet with General Motors subsidiary Opel next Monday to discuss an aid package worth US$ 1.27 billion. In the UK, where auto trade represents 8 percent of the economy, auto makers have said they will ask the government for “a package of measures to stimulate demand.” Car sales in Britain fell by 23 percent in October. And currently the EU is being lobbied for 40 billion euros in low-interest loans and incentives to do away with old cars.
On the other side of the Atlantic, leading Democrats unveiled plans Monday to help the US auto industry with a US$ 25 billion loan programme. Crafted by Michigan Senator Carl Levin, the proposal would amend the Treasury Department’s existing US$ 700 billion Troubled Asset Relief Programme for financial services, which was approved in October.
According to the Democrat rescue plan, loans would be granted for a 10-year period - longer ones would only be given with Treasury discretion - and they would be subject to an interest rate of 5 percent for the first five years, rising to 9 percent. The proposal also calls for limits on executive compensation and the prohibition of dividend payments.
But proponents of the bill face strong opposition from those who argue that an immediate bailout will not solve the more extensive competitiveness problems in the industry.
Instead, the White House and many Republicans favour amending a different US$ 25 billion law - already approved in September - and designed to improve technology and develop more fuel efficient cars. This version, by allowing government veto power over business decisions worth US$ 25 million or more and requirement for submission of a detailed viability and competitiveness plan, among other conditions, is said to make stricter demands on the auto industry. The package proposed by the Democrats would be in addition to this loan.
Executives from the ‘big three’ of US car manufacturers - Chrysler, Ford and General Motors - have been lobbying for ‘immediate’ government aid. The heads of Chrysler and GM have warned that without a loan package their companies might file for bankruptcy before the year’s end. GM reported a loss of US$ 4.2 billion and Ford one of US$ 2.98 billion in just the third quarter of 2008.
It is feared that without a rescue package the stock market may plummet as it did after the Lehman Brothers’ September collapse. And because so many companies are tied to the auto industry - including suppliers, dealers, car haulers and rental companies - some say that a collapse could be ‘cataclysmic’. The three car manufacturers together employ close to a quarter of a million workers and those arguing for a rescue package claim that the industry affects more than 4 million other jobs. The government would have to dole out US$ 200 billion to cover unemployment benefits if GM goes under, economic analysts say.
President-elect Barack Obama has indicated that he would support an aid package to the auto industry - albeit with strong conditions attached. Bush too supports extending help, but opposes the Democrat bailout because it will use the Treasury funds earmarked for financial service companies.
The US Senate is expected to vote on the bailout late this week, but some say that delaying the vote until January would increase the bill’s chances of being approved.
ICTSD reporting; “U.S. auto execs take case for bailout to Congress,” REUTERS, 18 November 2008; “Democrats propose $25 billion in loans for carmakers,” LOS ANGELES TIMES, 18 November 2008; “Congress takes first step on automaker bailout,” REUTERS, 18 November 2008; “Europe under pressure to join auto bailout,” THE ECONOMIC TIMES, 18 November 2008; “Car industry gets jittery over crunch,” DOWJONES NEWSWIRE, 15 November 2008.
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The USA was earlier top-technology nation with space exploration, a World peace broker, an inspiration for hope, a shining example to be admired by all. But all this has changed: the USA has sunk into lethargy, lack of vision, mitilaristic intervention to feed to military-industrial complex, greediness, bankruptcy, and so forth. There is something philosophically wrong with the route that the USA has elected to follow in more recent times. This is tragic. The USA is falling to a state of high entropy involving increased violence (in a country where many people have guns - recipe for civil war and a blood bath), disorder, lack of personal integrity, ethnic strife in a multicultural society and so forth.
The situation is terribly sad. Things could have been so good in the USA. Had the money spent by the USA invading Iraq been used on renewable energy systems, the USA would have been World leader in renewable energy systems and would have weaned itself from the addictive black sirop.
Sadly the USA is incontrollably imploding. Hopefully something will rise from the ashes of what will be left.
Bye