France gives US 8.5 billion lifeline to carmakers

This article shows that protectionism is not confined to the US with its Buy American strategy but is surfacing in France, Italy, Germany and the UK. In Europe this trend is straining relationships with smaller and poorer members of the European Union who cannot compete with bigger members' bailouts.
In France the unions have considerable influence still as is shown by the fact that carmakers agree not to close plants or even restructure during the period of the loans and also they are to avoid layoffs as far as possible. All US unions get is a chance to bargain for lower wages!
This is from IHT.



France gives €6.5 billion lifeline to its carmakers
By Matthew Saltmarsh
Monday, February 9, 2009
PARIS: France on Monday announced a sweeping plan to support its automobile industry as concern intensified in Europe that the economic downturn was exacerbating protectionist tendencies among trading partners.
As the €6.5 billion, or $8.5 billion, plan was announced in Paris, ambassadors to the World Trade Organization were meeting in Geneva to try to counter the increasing evidence of economic nationalism on the part of major industrial countries.
"The fragile economic prospects of every WTO member have become especially vulnerable to the introduction of any new measure that closes off market access or distorts competition," Pascal Lamy, director general of the international trade body, said at the opening session of the meeting. "We must remain vigilant."
And European Union finance ministers, meeting Monday in Brussels, decried protectionist tendencies, which are already causing tension between wealthy EU member states, like France, that have enacted bailout plans and those, like the Czech Republic, that do not have access to the same resources to prop up their native industries.
The concerns, analysts say, revolve around the fear that anti-competitive measures have been worked into the recent state financial rescue packages, the bailouts of the auto industry and even the official reaction in labor disputes.
"The free market rule book is being thrown out of the window," said Jean-Pierre Lehmann professor of international political economy at the International Institute for Management Development in Lausanne, Switzerland. "We can only hope that it is recovered when things improve in the economy."
Europeans have expressed alarm recently about the "Buy America" provisions - especially those favoring U.S. steel producers - that were included in the more than $800 billion U.S. economic stimulus bill.
The Europeans also have criticized American support for General Motors and Chrysler, but it may be harder for them to press that case internationally when their own countries are pursuing similar policies.
Last week the U.S. Senate, at the urging of the White House, agreed to weaken some of those provisions, but their mere inclusion raised concerns about the consequences for Washington and the rest of the world.
As part of the French plan announced Monday, PSA Peugeot Citroën and Renault, the two largest French carmakers, will each get a five-year loan of €3 billion at an interest rate of 6 percent, while Renault Trucks, which is owned by Volvo of Sweden, will receive €500 million.
President Nicolas Sarkozy of France said that the funds should be used to invest in clean technology, and that "Renault and PSA have also committed to not to close any production sites for the duration of their loan and to do whatever they can to avoid layoffs."
"It's a commitment that I applaud because it ensures that this acute but temporary crisis will not destroy our industrial base and automotive know-how."
The auto sector has reported slumping sales and thousands of job cuts in the past year not only in France, but also across Europe and beyond. On Monday, Nissan, the Japanese automaker controlled by Renault, announced 20,000 job cuts and forecast its first annual loss in nine years.
Carlos Ghosn, chief executive of Renault and of Nissan, tied the French automaker's troubles directly to the global credit crunch.
"In light of the exceptional crisis impacting our entire industry, access to credit was indispensable for supporting our activity and that of the automotive industry," he said.
Renault added that over the short term it would "do everything it can to maintain jobs and skills, at production sites as well as research, engineering and test centers" and that it would "not implement restructuring programs at its automotive plants in France in 2009."
Officials in Brussels will now study the French plan to see whether it contravenes EU rules on state aid.
"The commission will need to scrutinize very carefully details of the subsidies, the conditions attached to make sure of their compliance with state aid and single market rules," the EU's competition spokesman, Jonathan Todd, said, according to Reuters.
The German finance minister, Peer Steinbrück, said as he arrived at the EU finance minister meeting that protectionism had to be a part of the discussion of how to help banks take toxic assets off their books, rescue carmakers and bring the euro region economy out of a recession.
"Everybody is in the process of conducting policies that help their country as a business location," Steinbrück said, according to Bloomberg News. "One has to be very careful" not to sink into protectionism, he said.
French support for its auto sector has already drawn sharp criticism from the Czech Republic, the country that currently holds the rotating presidency of the European Union.
Prime Minister Mirek Topolanek of the Czech Republic was quoted on Monday as saying that the ratification of the EU's planned Lisbon treaty has been threatened by comments made by Sarkozy.
Sarkozy suggested last week during an interview that French car companies should locate plants at home rather than in countries like the Czech Republic, Reuters reported.
"What Nicolas Sarkozy said is unbelievable," Topolanek said during an interview for the daily Hospodarske Noviny. "If somebody wanted to seriously threaten ratification of the Lisbon treaty, they couldn't have picked a better means or time."
Chancellor Angela Merkel of Germany has also inveighed against anticompetitive state aid. "We must not allow market forces to be completely distorted," Merkel said last month. "For instance, I am very wary of seeing subsidies injected into the U.S. auto industry. That could lead to distortion and protectionism."
A German official, who was not permitted to speak publicly on the issue, said Monday: "We're watching developments in France closely in the light of the measures that the German government has agreed on to strengthen the auto sector here."
France is far from alone in helping its automakers. Berlin itself announced last month a €1.5 billion aid plan for the auto sector largely focused on consumer demand and including incentives worth €2,500 for new car purchases.
Italy on Friday announced $1.7 billion of measures to help its struggling car industry. The plan, includes a payment of up to €1,500 for trading in an old car to buy a new, greener one. Carmakers in turn have been told to maintain their plants in Italy and pay auto parts suppliers, Prime Minister Silvio Berlusconi said. Fiat which dominates Italy's car industry, had warned 60,000 jobs could be at stake if the government did not act and has closed plants across the country for short periods to cope with savage falls in demand.
Last month, Britain offered auto manufacturers and suppliers access to £1.3 billion, or $1.9 billion, in loan guarantees from the European Investment Bank, topped up with an additional £1 billion from the Treasury, the business secretary, Peter Mandelson, said.
He also said that the government would increase its funding for retraining workers who had lost their jobs.
The British auto industry adds about £10 billion a year to the economy and employs more than 800,000 people. But government aid to automakers is more controversial in Britain than in other countries because most of the British manufacturers are foreign-owned. For example, Jaguar Land Rover, which employs 15,000 people in Britain, is owned by Tata Motors of India. General Motors of the United States owns Vauxhall.
Washington announced late last year a $14 billion plan to help General Motors and Chrysler, although Ford Motor, which is in better shape than its competitors, had said that it would not seek the emergency loans.
But it is not just in the auto sector that there has been concern about protectionism. British workers recently pressured Total, the French oil company, to agree to hire domestic workers at a refinery after a series of strikes protesting the use of Italian and Portuguese workers.
Protesters reminded Prime Minister Gordon Brown of Britain of his previous commitment hat he had made to offer "British jobs for British voters."
A report drawn up by Lamy before the WTO meeting Monday pointed out the protectionist risks inherent in the string of financial bailouts that have been enacted by governments across the world in recent months.
Protectionist impulses "would only worsen the economic situation for all and diminish prospects for an early recovery in activity. Protectionism could also provide retaliatory action by others that would compound the damage caused," the report said.
"Some of the measures at least, which in most cases constitute some form of state aid or subsidy, may eventually have negative spillover effects on other markets or introduce distortions to competition between financial institutions."
At the meeting, Lamy pledged closer scrutiny of national trade policies to guard against new barriers that he said would hit developing countries hardest.
Lehmann, the professor, said the world could see a rerun of the "car wars" of the 1980s, when companies tried to limit imports.
But this time, he warned, there is the additional backdrop of a global downturn. At the same time, he said, some emerging economies might be deprived of the chance to move up the value-added industrial chain if they were not able to sell to the advanced economies.
Still, Lehmann expressed skepticism about what the WTO could do to counteract the trend.
"Lamy says it's a member-driven organization," he said. "He has limited power" especially as the WTO's Doha round on freeing global trade is going nowhere at the moment.
Analysts meanwhile expressed some skepticism about how far the auto bailouts will help that sector.
"The main issue is still overcapacity - we estimate it's at about 35 percent in Europe - and how that is addressed," said David Arnold, an auto analyst in London for Credit Suisse. "And the key here is scrapping incentives and the reopening of credit markets."
The main victim of plans to keep production in France could be Spain, rather than Eastern Europe, Arnold said, where the auto plants are "less efficient than the newer plants in the east and it would be easier to repatriate production from there."
Paul Nieuwenhuis, director of the Center of Automotive Industry Research at the Cardiff Business School, said most European automakers were in better shape than their U.S. rivals because they had entered the recession in "leaner" shape.
"This will tide them over for a period," he said. But he added, if the recession endured, other approaches would be required.
In a report on the European auto sector last month, Credit Suisse said the current predicament stems from a history of state and family support, together with political opposition to capacity closure or consolidation.
"Further consolidation may ultimately be the healthy outcome of the current economic downturn, but the degree to which this is allowed to happen will depend heavily on the degree and form of any government intervention."
Peugeot-Citroën reports its 2008 results Wednesday followed by Renault on Thursday.
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