Page last updated at 16:25 GMT, Friday, 3 October 2008 17:25 UK

Paris scathing about Detroit bail-out

By Jorn Madslien
Business reporter, BBC News, Paris motor show

Paris Motor Show
The US package was criticised by international automotive executives

Car industry executives at the Paris motor show have kept their eyes firmly on developments across the pond this week.

President George W Bush signed legislation that gives US carmakers access to $25bn (14bn) of cheap government-backed loans to help them develop less polluting cars - a huge bonus for the country's struggling car giants.

"General Motors, Ford Motor and Chrysler stand to benefit from low-cost funding at a time when tight credit market conditions make additional borrowing prohibitively expensive for most auto industry participants," the ratings agency Standard & Poor's in a report.

Added BMI Industry Insights in a report: "This is expected to save the carmakers millions of dollars in financing alone."

The proposed $700bn bail-out of American banks also caught the eye of senior industry figures. The bank bail-out could make it easier for car buyers to raise finance and thus help revive dire sales.

Hence, in a last-minute move, General Motors chief Rick Wagoner cancelled his scheduled appearance at the Paris show to throw his weight behind it.

European protests

European automotive industry executives see the $25bn loan guarantee as a bail-out package that will give American car companies an unfair advantage when it comes to developing less-polluting cars - a point that is not missed by the US authorities.

It's not a bail-out
Fritz Henderson, chief operating officer, General Motors

"German carmakers view this as subsidies violating competition," observes the CIA, the US intelligence agency, in a research note.

But those who see it as a bail-out have got it wrong, insists General Motors' chief operating officer Fritz Henderson.

"It's a loan, actually. It's not a gift," he tells BBC News in an interview.

"It's all about financing projects, which can range anywhere from a Volt [plug in hybrid] to hybrid vehicles to pretty significant forms of advanced propulsion.

Detroit plan
GM, Ford and Chrysler will receive some $5bn each
Suppliers will share the remaining $10bn
No repayments will be required during the first five years
The interest rate is set at about 4%, a third of the current market rates
Source: BMI Industry Insight

"It's not a bail-out," he continues.

"If society decides we need more oil, we provide tax credits for drilling. The companies make $10bn a quarter. Is that a bail-out?

"Or let's take defence companies. Governments chose to underwrite R&D associated with defence.

"I am objecting to the characterisation, that this form of government support is a bail-out, whereas this form is something else."

Lessons from Washington

America's $25bn loan guarantee for carmakers is in stark contrast with the European system, where lawmakers are not offering financial incentives to balance a threat to fine companies if they do not cut emissions.

Volkswagen group chief Martin Winterkorn
We will raise our hand when the time comes
Martin Winterkorn, chief executive, Volkswagen Group

Brussels should take a leaf out of Washington's book, according to Carlos Ghosn, chief executive of alliance partners Renault and Nissan.

Governments should "lay down the financial means that will allow us to have low emission cars and zero emission cars", he says, according to industry magazine Automotive News Europe.

Jaguar boss David Smith wants the UK government to do the same, according to The Times.

VW's hopes

Some non-American manufacturers with plants in the US also hope to benefit from the loan guarantee, even though it is not clear they will be able to.

Thierry Dombreval
I don't know whether it'll be enough
Thierry Dombreval, chief operating officer, Toyota Motor Europe

"We will raise our hand when the time comes," says Martin Winterkorn, chief executive of Volkswagen Group, the German company which also makes cars in the US.

But there is a clause excluding support for US plants that have been built during the last 20 years.

"It's got to be US projects," points out General Motor's Mr Henderson. "It would by and large favour, on balance, US companies."

Not enough?

Toyota's response to the $25bn worth of cheap loans its American competitors will soon benefit from is rather more lofty.

The Japanese carmaker outsells Ford, and possibly GM - depending on what the latest sales figures show, in the US market.

"It's OK with us," says Toyota Motor Europe's chief operating officer Thierry Dombreval of the loan guarantee.

"Although we are a large-scale producer in the US, we are not facing the same problems," he says, adding: "I don't know whether it'll be enough."

Mr Dombreval's view is shared by S&P, which believes that even with legislative and financial help, Detroit's Big Three are a long way from recovery.

"The loan package will not improve the Michigan-based automakers' credit and recovery ratings," the agency says in the report.

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