When the White House finally handed out to the Detroit carmakers a long-awaited lifeline last Friday, it seemed to have triggered or at least fueled a wave of auto industry bailouts around the world.
While many cheer the move as a timely rescue for the victims of global economic recession, many others have raised the acute question: Will this really work or will it make things even worse?
Bailout wave
Just one day after U.S. President George W. Bush announced a 17. 4-billion-dollar emergency loan to Detroit's automakers, the Canadian government decided to provide around 3.3 billion U.S. dollars in aid to keep ailing automakers in the country afloat while they restructure. The so-called American auto Big Three, namely General Motors (GM), Ford and Chrysler, again became the major beneficiaries of the Canadian package.
Across the Atlantic, the American move has been closely watched. European automakers are seeking 40 billion euros (52 billion U.S. dollars) in loans from the European Investment Bank, ostensibly to help develop cleaner cars.
Earlier this month, France provided 1.5 billion euros (2 billion dollars) in aid to its struggling automobile industry. French President Nicolas Sarkozy said on Tuesday that there is another new plan coming out by the end of next month.
In Germany, Chancellor Angela Merkel said her government would soon make a decision on the loan guarantees requested by GM Europe officials.
In Britain, the government is reportedly in talks with the Tata group, the Indian owner of Jaguar Land Rover, about a government rescue package up to 1 billion pounds (1.5 billion dollars).
Sweden, home of Ford's Volvo division and GM's Saab division, has passed a 3.6-billion-dollar aid package to prevent a collapse of its auto industry.
There are other measures apart from an infusion of public fund. The Japanese government weighs on the option of depreciating its currency as a strengthened yen has raised cost for Japanese carmakers.
Meanwhile, in a bid to boost domestic car industry, the Republic of Korea slashed an auto consumption tax by one third, and Russia imposed more duties and taxes on imported cars. In addition, Russian state companies will be directed to stop buying foreign cars.
Tough time
2008 has been a difficult year for automakers around the world. An unprecedented oil price rally forced Americans, who drive most in the world, to drive less. And when the oil price took a free fall as the economy hit the downward path, so did the demand for vehicles.
With the financial crisis sweeping the world, the auto industry was caught right amid the credit crunch -- consumers would not be able to get loans to buy a car while the companies face the short of liquidity to keep operating. And as reports of large layoffs come out almost on daily basis, cash-tight consumers are more reluctant to make large purchases like buying a car.
The fall-off in sales worsened in the fourth quarter with global vehicle production dropped by 16 percent, according to the economic forecasting company IHS Global Insight. Even Toyota expects an operating loss for the fiscal year ending next March, the first time in 70 years. But as the global economy shows no sign of recovering, 2009 could be even worse.
Therefore, when the American Big Three begged for government fund to stay away from bankruptcy, the panic was not just confined to Detroit.
A collapse of the Big Three would have far reaching effects. The United States would see a one-percent drop of its GDP, a 1.1- million jump in job losses, and an additional 13 billion dollars of new unemployment claims. Its northern close neighbor Canada would lose 600,000 jobs and 80 percent of production in its automotive parts industry.
In Germany, where about one in five of the workforce are employed either directly or indirectly in the auto sector, millions of jobs would be at stake. Even the Big Three's Japanese competitors are not immune as they share suppliers and dealers in the North American market.
To simply put it, 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 U.S., this could see a collapse in the entire supply chain," commented Heino Ruland, a strategist at Frankfurt Finanza, Germany.
And under the current circumstances with unemployment rates at decades' high and market confidence down to the bottom, it seems that no government can afford another major blow to the already battered economy. So there is no surprise to see countries rush to the rescue of their own auto industry, following America's suit.
