Let’s not leave Europe out of the big auto bailout

Let’s not leave Europe out of the big auto bailout

When you see your competition across the pond getting a nice fat US$25 billion dollar bailout…I mean ‘loan’…it’s perfectly understandable you’d feel aggrieved. Carmakers compete in a global market, so it’s not like the local store is getting help; this is something that impacts on a much larger scale. European carmakers are capitalising on the US government’s timing of the loan to ask the European Commission for a €40 billion ($55.22 billion) loan to speed up the transition to environmentally friendly cars. Is this a good thing? Let’s remove any notion that the carmakers are doing this altruistically, because they’re not. There are tough new regulations coming into force and the big European manufacturers are facing some stiff market conditions in which they’ll have to invest money they don’t want to invest in R&D to meet the demands. If the carmakers have to subsidise it themselves they’re going to a) wear a whole lot of costs to the detriment of their share prices, and/or b) have to raise prices to fund the R&D – they may be able to argue for an extension of the deadlines to meet their environmental obligations. If they receive a loan, they may be able to negotiate much more favourable ’emergency’ terms. The problem at the moment is the credit crunch. Banks don’t want to lend money to anyone. So, going to a government with an emotive plea is a much easier way of getting funds. It will be interesting to see any terms of the loan, though, such as how long, what interest rate, and so on. And where the money is coming from! The ‘loan’ may prove to be the best option for the environment.

When you see your competition across the pond getting a nice fat US$25 billion dollar bailout…I mean ‘loan’…it’s perfectly understandable you’d feel aggrieved. Carmakers compete in a global market, so it’s not like the local store is getting help; this is something that impacts on a much larger scale. European carmakers are capitalising on the US government’s timing of the loan to ask the European Commission for a €40 billion ($55.22 billion) loan to speed up the transition to environmentally friendly cars. Is this a good thing? Let’s remove any notion that the carmakers are doing this altruistically, because they’re not. There are tough new regulations coming into force and the big European manufacturers are facing some stiff market conditions in which they’ll have to invest money they don’t want to invest in R&D to meet the demands. If the carmakers have to subsidise it themselves they’re going to a) wear a whole lot of costs to the detriment of their share prices, and/or b) have to raise prices to fund the R&D – they may be able to argue for an extension of the deadlines to meet their environmental obligations. If they receive a loan, they may be able to negotiate much more favourable ’emergency’ terms. The problem at the moment is the credit crunch. Banks don’t want to lend money to anyone. So, going to a government with an emotive plea is a much easier way of getting funds. It will be interesting to see any terms of the loan, though, such as how long, what interest rate, and so on. And where the money is coming from! The ‘loan’ may prove to be the best option for the environment.

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