Car Company Bailouts Move To China, Japan And Europe Next

November 19, 2008 by Douglas A. McIntyre

Batmobile512A car industry bailout may save GM (GM), Ford (F), and Chrysler for a few months, but it is likely to set a painful precedent for governments in Asia and Europe.

If troubled American auto companies can get cheap and ready loans, why shouldn’t their peers in China, Japan, Russia, and Europe? Which country can afford to lose its automakers?

According to The New York Times, "China’s car industry is quietly pressing Beijing for government help as it copes with a jarring slowdown." Until earlier this year, vehicle sales on the mainland were growing at double digits. That has turned into flat sales and the last couple of months and 2009 looks no better. China’s auto firms have been gearing up and spending to accommodate demand which is no longer there.

Granted, China does own or control most of the large, local auto companies which competing with GM, VW, and Toyota (TM). Many industry multinationals have put billions of dollars of resources into manufacturing and marketing their cars in a market that they believed would grow rapidly for another decade. The fact that the assumption is not true puts even more pressure on The Big Three. China was a country were sales were supposed to partially make up for trouble in a US market that is no longer robust.

A US industry bailout would probably be the start of government aid to a number of car companies overseas. Europe has some healthy operators such as VW and BMW. But, it is possible that Renault, which has a product and marketing alliance with Nissan, could move into the column of troubled companies. Auto firms in Korea, which have very modest global market share, could also run short on cash.

Perhaps the car industry will become so desperate that the IMF will have to set up a new pool aimed at keeping global auto corporations alive.

Douglas A. McIntyre