Page last updated at 08:40 GMT, Monday, 1 March 2010

Carmakers' next crutch: Green subsidies

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

Towards zero - car ahead of unveiling in Geneva
The world's carmakers have converged on Switzerland

Carmakers are gathering at their annual jamboree in Geneva this week, collectively gasping for air.

A year ago the industry was in crisis.

Car sales had slumped, hit by the global recession and credit crunch that resulted in banks refusing to lend money, whether to people who were keen to buy cars, or to suppliers and manufacturers fighting for their survival.

But at least the carmakers were still energetic, vigorously calling for governments to step in and help revive car sales.

Their calls for action were heard, and many, if not most, governments introduced some form of scrappage scheme that subsidised cars sold to those who crushed their old ones.

By now, most of the scrappage schemes have come to an end, or they will do soon.

So the industry has been left not only exhausted after perhaps the toughest couple of years in its history, but also desperate for another fix of public money.

And they know exactly where to look for it.

Electric motoring

At this year's motor show there will hardly be a single exhibit that does not display petrol-electric hybrids or all-electric cars.

Nissan Leaf
Nissan will be showing off its Leaf electric car

The models on display were conceived and developed during less lean times, when carmakers were forced by regulators to invest heavily in technology that would help them cut vehicle emissions.

There are hybrid versions of the Ferrari 599 Fiorano, Porsche's new Cayenne sports utility vehicle (SUV) and the Audi A8, as well as of more ordinary cars such as the Peugeot 508 saloon, the Suzuki Swift and the tiny Lexus LF-Ch concepts.

All-electric models on display include Nissan's Leaf, the Kia Venga, and the BMW Active-E - as well as the Aston Martin Cygne, a beauty-treated Toyota iQ with hand-stitched leather seats.

Even China's Build Your Dream, or BYD for short, is here with its hybrid and electric models, both aimed for European markets.

Government incentives

Developing these cars have been costly affairs for the carmakers, and in these lean times, when every cent and penny counts, they are eager to recoup their investments.

But with no signs of a strong economic recovery, indeed amidst widespread fears that we will have a so-called double-dip recession, they know full well that their customers are not about to pay a premium to go green.

Car being scrapped
Carmakers are looking for replacements to scrappage schemes

So they are turning to their governments, hoping for another shower of subsidies, whether in the form of incentives for people who buy these greener cars, or as assistance or tax incentives that support their research and development programmes.

Governments have been quick to respond.

Last week, for instance, the UK government said it would cough up up to £5,000 ($7,600) to help consumers buy electric cars - a level of assistance that may well cover about a quarter of the cost of, say, a Nissan Leaf.

In South Korea, the government is getting ready to lift a ban on all-electric vehicles - which until now it has justified on safety grounds - and replace it with both research and development assistance, as well as tax incentives and other measures to stimulate demand for such cars.

The move seems set to coincide with the country's manufacturers getting ready to start making electric vehicles.

Electric car pioneers Tesla and Fisker are at the Geneva show too, and consider this - in January Tesla secured a $465m (£305m) low interest loan from the US Department of Energy to build its new factory in California, with Fisker getting $528m to help with the construction of its production plant.

Scale this up and look to Detroit in the US, where the traditional automotive industry has been decimated, and you will see the figures multiply.

In Motor City, hopes are high that the billions of dollars President Barack Obama's administration has set aside to pay for the development of petrol-electric hybrids or electric cars and batteries will help the recession-hit economy bounce back.

Jobs and emission cuts

So as the scrappage schemes are phased out, it seems clear that green subsidy schemes are morphing into the motor industry's next set of crutches.

Worker at a Fiat factory in Italy
The carmakers stress their importance to the wider manufacturing sector

The various scrappage schemes were widely criticised for ignoring the environment part of the equation; in most cases the scrappage cash was dished out without any regards to the new cars' emissions.

Last week, Dieter Zetsche, the walrus-moustached president of the European Automobile Manufacturers Association, said the motor industry should be seen as a "partner in problem solving" eager to combine forces with other stakeholders "to manage together what none of us can manage alone".

The challenges ahead, he said, were two-fold. "Number one: Building a more stable foundation for economic recovery. And two: Leading the transition to low-carbon, sustainable mobility."

In other words, in return for injections of taxpayers' cash the industry will deliver two things, namely jobs - the industry accounts for more than one in three manufacturing jobs in Europe - and emissions reductions.

Which is exactly what governments say they want.

Hence, this time around the cash injections might actually deliver better value for money.

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