Page last updated at 15:42 GMT, Friday, 16 January 2009

'Brutal' outlook for carmakers

Car production line
Carmakers are suffering from a collapse in sales

There are no guarantees that all the main European carmakers will survive the economic downturn, according to the EU's Industry Commissioner.

In a stark warning, Guenter Verheugen also said the outlook for the European car industry was "brutal".

The commissioner was speaking before a meeting of EU ministers to discuss ways of providing aid to the car industry.

After the meeting, he ruled out relaxing state aid rules to help governments bail out carmakers.

"The outlook for the industry is, to say the least, brutal. We have seen a dramatic decrease in car sales, especially in the last quarter of 2008 - with a drop of more than 20% - and we expect another drop of 20% for 2009 that will affect hundreds of thousands, if not millions, of workers," Mr Verheugen said.

No guarantees

"There is no guarantee that all the main European manufacturers can survive the crisis," he added.

After meeting fellow EU ministers in Brussels, Mr Verheugen said state aid rules to help governments bail out individual carmarkers would not be relaxed.

He said that current rules already allowed states to provide assistance if the money was used for investment and restructuring, rather than "just to keep an operation or company running".

"Any races to subsidies should be avoided because it would distort competition and the functioning of the internal market," he added.

He did not, however, rule out increasing loans to carmakers from the European Investment Bank.

"It depends on whether or when the commercial banks begin functioning properly and the credit crunch is over," he said.

Co-ordinated action

The meeting of business leaders was the idea of UK Business Secretary Peter Mandelson, he said.

"We should not compete against each other. We have to be conscious of what's happening in the US," said Lord Mandelson.

The US government spent billions of dollars on a bail-out package for Chrysler and General Motors in December last year.

"We've got to try to find co-ordinated action to boost demand," said Miguel Sebastian Gascon, Spain's industry minister.

One possible measure that could be implemented is to pay new car owners to scrap their old cars.

Another could be to provide aid to car financing firms to help people to raise money to buy a new car. This idea is already being discussed by the UK Treasury.

Government aid could come in the form of commercial loans or loan guarantees to financing companies.

Sales of cars have slumped across the world as consumer spending collapses.



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