Detroit's Bailout Invites Competitive Response from Abroad

It seems that the bailouts are now turning into a "Beggar Thy Neighbor" policy of aid for specific sectors of the global economy. First, it was finance as the banks were savaged by massive writedowns to their property and derivative holdings -- with each nation competing with the next for the largest handouts to this vital sector of the economy.

Now, as the real economy has started to plummet, it is the auto sector. While all eyes are peeled on Washington and Detroit after the $15 billion bailout there, Volkswagen has quietly been lobbying the German government for its own bailout.

This is looking a lot like competitive bailout schemes as Daimler wants in as well. I can only imagine what Honda, Nissan and Toyota are thinking. Is this the 21st century version of competitive currency devaluations?

Below is my translation of a "Die Welt" article published just yesterday detailing Volkswagen's manoeuvrings.

As the first auto finance company, VW Bank is requesting assistance out of the German rescue package. The financing arm of Volkswagen wants to be able to secure car loans. The competition is responding promptly. In order not to be at a disadvantage in competition, Daimler Bank is now leaving "all options open."

Volkswagen Financial Services (VWFS) and its affiliated VW Bank want access to state aid. Requests for state guarantees were made for both VW subsidiaries, said a spokesman of Financial Services. He declined to give details as to the amounts.

With the guarantees, car loan refinancing should be secured. VWFS and VW Bank promote sales for the car maker, for example, by financing leasing contracts for the company's new cars. Through the end of September 2008, the financial subsidiaries had contributed a profit of 744 million euros to group earnings.

Lower Saxony Prime Minister Christian Wulff (CDU) deems the applications valid. "The government welcomes the use of state guarantees for VW Bank by the federal government in order to ensure problem-free auto financing in 2009," said Wulff.

VW Bank is the first bank of a car manufacturer to request state assistance. As recently reported in Die Welt, other financing arms of German car makers are considering slipping under the government umbrella for rescue. But unlike Volkswagen Bank, Daimler Bank does not currently intend to take claim to state aid, according to a spokesman. "However, we hold all options open in order not to be disadvantaged by competitors," said the bank spokesman.

Volkswagen Financial Services AG is, according to its own figures, the largest automobile financial services provider in Europe. The total assets of the company at the end of 2007 amounted to 52.3 billion euros. 6,100 employees are employed by the VW subsidiary worldwide, including approximately 3,800 employees in Germany.

Through the financial subsidiary, VW provides, amongst other services, auto financing. And it handles its own leasing business through the company Volkswagen Leasing. The corporate fleets of other companies are also cared for through this group. Through Volkswagen Bank GmbH, the company also offers current accounts as well. Volkswagen Bank also includes Auto Europe Bank, which financed non-company vehicles.

As you can see from this blurb, Daimler feels disadvantaged by the free money that Volkswagen (VLKAY.PK) is looking to get and I am certain all foreign car makers want to level the playing field with Detroit after the Americans have received massive injections of state aid. It looks like this process is just beginning.

Feel free to add your two cents on whether we are seeing escalating competition in bailout schemes.

Sources:

• VW-Bank braucht staatliche Kreditgarantien - Die Welt
• Congress reaches agreement on $15bn loan to GM and Chrysler - Telegraph

Disclosure: I own no equity, debt or derivative positions in any auto manufacturer or related company, domestic or foreign.

Comments

[dw57:]

what makes you think that Detroit is the only one even if they don't get one? I doubt any country (other than here) will turn it down.

2008 Dec 10 09:39 AM

[eddie6442:]

GM & CHRYSLER:
The GRAVE is dug, and it's only a matter of TIME & MONEY before the dirt is shoveled over the coffins. It is quite apparent that the UAW doesn't get it, and Exec's continue to display small gonnies! Dems in Congress are behoden to the Unions for over $450M in 2008 campaign financing......$53MM by the UAW. Their scare tactics of catastrophic consequences from a pre-packaged CH11 reorganization is BOGUS.
Senator Corker has it exactly right, yet he is largely ignored as an annoying knat in Congress. UNLESS, and until the DEBT, LABOR and LEGACY COSTS are realigned, there is absolutely no way these companies can exist!
I challenge anyone to explain how the cost of a REAL REORG will cost more than $125BB, which is where we are headed under the current legislation-----and the DIRT WILL STILL COVER THE COFFINS ......... only a few years later............
Business as usual in DC!!!!!!!!!
IMHO

2008 Dec 10 09:49 AM

[Thadeus Tho...:]

the Big Three






Nothing needs to be said... Ford, Chrysler and GM's contributions after
9/11

An interesting commentary...You might find this of interest:

'CNN Headline News did a short news listing regarding Fo! rd and GM's
contributions to the relief and recovery efforts in New York and
Washington.

The findings are as follows.....

1. Ford- $10 million to American Red Cross matching employee
contributions of the same number plus 10 Excursions to NY Fire Dept. The
company also offered ER response ! team se rvices and office space to
displaced government employees.

2. GM- $10 million to American Red Cross matching employee contributions
of the sam e number and a fleet of vans, suv's, and trucks.

3. Daimler Chrysler- $10 million to support of the children and victims
of the Sept. 11 attack.

4. Harley Davidson motorcycles- $1 million and 30 new motorcycles to the
New York Police Dept.

5. Volkswagen-Employees and management created a Sept 11 Foundation,
funded initial with $2 million, for the assistance of the children and
victims of the WTC.

6. Hyundai- $300,000 to the American Red Cross.

7. Audi-Nothing.

8. BMW-Nothing.

9. Daewoo- Nothing.

10. Fiat-Nothing.

11. Honda- Nothing despite boasting of second best sales month ever in
August 2001

12. Isuzu- Nothing.

13. Mitsubishi-Nothing.

14. Nissan-Nothing.

15. Porsche-Nothing. Press release with condolences via the Porsche
website.

16. Subaru- Nothing.

17. Suzuki- Nothing.

18. Toyota-Nothing despite claims of high sales in July and August 2001.
Condolences posted on the website Whenever the time may be for you to
purchase or lease a new vehicle, keep this information in mind. You
might want to give more consideration to a car manufactured by an
American-owned and / or American based company. Apart from Hyundai and
Volkswagen, the foreign car companies contributed nothing at all to the
citizens of the United States ... It's OK for these companies to take
money out of this country, but it is apparently not acceptable to return
some in a time of crisis. I believe we should not forget things like
this. Say thank you in a way that gets their attention..

++++ Pass it on, I just did. ++++






On Dec 10 09:49 AM eddie64 wrote:

> GM & CHRYSLER:
> The GRAVE is dug, and it's only a matter of TIME & MONEY before
> the dirt is shoveled over the coffins. It is quite apparent that
> the UAW doesn't get it, and Exec's continue to display small gonnies!
> Dems in Congress are behoden to the Unions for over $450M in 2008
> campaign financing......$53MM by the UAW. Their scare tactics of
> catastrophic consequences from a pre-packaged CH11 reorganization
> is BOGUS.
> Senator Corker has it exactly right, yet he is largely ignored as
> an annoying knat in Congress. UNLESS, and until the DEBT, LABOR and
> LEGACY COSTS are realigned, there is absolutely no way these companies
> can exist!
> I challenge anyone to explain how the cost of a REAL REORG will cost
> more than $125BB, which is where we are headed under the current
> legislation-----and the DIRT WILL STILL COVER THE COFFINS .........
> only a few years later............
> Business as usual in DC!!!!!!!!!
> IMHO

2008 Dec 10 10:22 AM

[Dave D:]

As always America leads the way in economics. We bail-out every worthless undeserving industry with poor management & no accountability, & now foreign governments follow our fine example.

Take my advice,,, Plant vegatables, raise chickens, & keep your Grand daddys shotgun loaded & within reach. When the world economy finally collapses, it's every man for himself.

2008 Dec 10 10:25 AM

[Jason Rines...:]

Government intrustion/collusion/m... into markets + lobbyists + equality driven non-qualified, corrupt politicians = Collapse of markets, trust and a functioning Republic. Time to start over.

2008 Dec 10 10:28 AM

[bosun.j:]

@Dave D:

Shouldn't have to wait too much longer!




On Dec 10 10:25 AM Dave D wrote:

> As always America leads the way in economics. We bail-out every
> worthless undeserving industry with poor management & no accountability,
> & now foreign governments follow our fine example.
>
> Take my advice,,, Plant vegatables, raise chickens, & keep your
> Grand daddys shotgun loaded & within reach. When the world
> economy finally collapses, it's every man for himself.

2008 Dec 10 11:35 AM

[oldumbguy:]

Interesting drivel from the southern GOP congressional team, since they are heavily invested in foriegn auto manufacturing plants I guess I would expect no less.

BTW for those union bashers, you might want to take a look at the "assembly" labor $s in a US vehicle versus a transplant. The labor hours for assembly of a vehicle has declined significantly as all of the manufacturers depend more on suppliers. So while I know you all love to blame this problem on the UAW they really are a decreasing part of the equation.

2008 Dec 10 11:58 AM

[Socialism c...:]

Well...gotta have ALL developed nations head into bankruptcy before the World Bank and U.N. can impose "One World Government" on us all!!! What? You didn't know the plan? What did you *think* the G20 was about?

2008 Dec 10 01:08 PM

[sumosama:]

I don't understand your point...why would Isuzu et al donate to a 9/11 fund?


On Dec 10 10:22 AM Thadeus Thornton III wrote:

>
> the Big Three
>
>
>
>
>
>
> Nothing needs to be said... Ford, Chrysler and GM's contributions
> after
> 9/11
>
> An interesting commentary...You might find this of interest:
>
> 'CNN Headline News did a short news listing regarding Fo! rd and
> GM's
> contributions to the relief and recovery efforts in New York and
>
> Washington.
>
> The findings are as follows.....
>
> 1. Ford- $10 million to American Red Cross matching employee
> contributions of the same number plus 10 Excursions to NY Fire Dept.
> The
> company also offered ER response ! team se rvices and office space
> to
> displaced government employees.
>
> 2. GM- $10 million to American Red Cross matching employee contributions
>
> of the sam e number and a fleet of vans, suv's, and trucks.
>
> 3. Daimler Chrysler- $10 million to support of the children and victims
>
> of the Sept. 11 attack.
>
> 4. Harley Davidson motorcycles- $1 million and 30 new motorcycles
> to the
> New York Police Dept.
>
> 5. Volkswagen-Employees and management created a Sept 11 Foundation,
>
> funded initial with $2 million, for the assistance of the children
> and
> victims of the WTC.
>
> 6. Hyundai- $300,000 to the American Red Cross.
>
> 7. Audi-Nothing.
>
> 8. BMW-Nothing.
>
> 9. Daewoo- Nothing.
>
> 10. Fiat-Nothing.
>
> 11. Honda- Nothing despite boasting of second best sales month ever
> in
> August 2001
>
> 12. Isuzu- Nothing.
>
> 13. Mitsubishi-Nothing.
>
> 14. Nissan-Nothing.
>
> 15. Porsche-Nothing. Press release with condolences via the Porsche
>
> website.
>
> 16. Subaru- Nothing.
>
> 17. Suzuki- Nothing.
>
> 18. Toyota-Nothing despite claims of high sales in July and August
> 2001.
> Condolences posted on the website Whenever the time may be for you
> to
> purchase or lease a new vehicle, keep this information in mind. You
>
> might want to give more consideration to a car manufactured by an
>
> American-owned and / or American based company. Apart from Hyundai
> and
> Volkswagen, the foreign car companies contributed nothing at all
> to the
> citizens of the United States ... It's OK for these companies to
> take
> money out of this country, but it is apparently not acceptable to
> return
> some in a time of crisis. I believe we should not forget things like
>
> this. Say thank you in a way that gets their attention..
>
> ++++ Pass it on, I just did. ++++
>
>
>
>

2008 Dec 11 11:30 AM

[John Lounsbury:]

There is one benefit to the U.S. If every other country also does massive bail-outs with debt creation, the value of the dollar does not tank with respect to other currencies. Gold and scarce natural resource commodities may increase in nominal value (in dollar terms), but the iuncrease will be seen in all currencies. Possible exceptions would be low debt currencies (Swiss franc?).

This will be interesting to watch.

2008 Dec 11 11:51 AM

[slowdown:]

Apparently you either missed the news or are ignoring so you can continue to bash the domestic auto industry – The UAW has an agreement with GM/Ford/Chrysler and so does the CAW (Canadian version ratified yesterday I believe). The rest of us non union employees are taking salary/benefit cuts…again and many are being severed in the next couple of months. Meanwhile – you and the offer neglect to point out that Toyota who appears to be the shining beacon in all this has asked the Japanese Government to float it a loan of $2 bln to stay solvent. How is it that the company that we are all supposed to pattern ourselves after that has shown mega profits over the years has to have more (yes they have enjoyed government subsidies all these years) government subsidies to stay solvent? OH….I FORGOT….NOBODY’S BUYING CARS ANYMORE!!
Get off us and start trying to figure out how to pump money back to the bottom spenders and stabilize the job market.



On Dec 10 09:49 AM eddie6442 wrote:

> GM & CHRYSLER:
> The GRAVE is dug, and it's only a matter of TIME & MONEY before
> the dirt is shoveled over the coffins. It is quite apparent that
> the UAW doesn't get it, and Exec's continue to display small gonnies!
> Dems in Congress are behoden to the Unions for over $450M in 2008
> campaign financing......$53MM by the UAW. Their scare tactics of
> catastrophic consequences from a pre-packaged CH11 reorganization
> is BOGUS.
> Senator Corker has it exactly right, yet he is largely ignored as
> an annoying knat in Congress. UNLESS, and until the DEBT, LABOR and
> LEGACY COSTS are realigned, there is absolutely no way these companies
> can exist!
> I challenge anyone to explain how the cost of a REAL REORG will cost
> more than $125BB, which is where we are headed under the current
> legislation-----and the DIRT WILL STILL COVER THE COFFINS .........
> only a few years later............
> Business as usual in DC!!!!!!!!!
> IMHO

Mar 13 09:41 AM

[slowdown:]

and BTW...just so we are clear...those legacy costs...wages...and bondholders debt that you are rabid about getting in line with third world counties??? Yeah...that would be the money that I and the rest of the spenders in this country use to buy stuff and invest. We don't have it...you don't get it.


On Dec 10 09:49 AM eddie6442 wrote:

> GM & CHRYSLER:
> The GRAVE is dug, and it's only a matter of TIME & MONEY before
> the dirt is shoveled over the coffins. It is quite apparent that
> the UAW doesn't get it, and Exec's continue to display small gonnies!
> Dems in Congress are behoden to the Unions for over $450M in 2008
> campaign financing......$53MM by the UAW. Their scare tactics of
> catastrophic consequences from a pre-packaged CH11 reorganization
> is BOGUS.
> Senator Corker has it exactly right, yet he is largely ignored as
> an annoying knat in Congress. UNLESS, and until the DEBT, LABOR and
> LEGACY COSTS are realigned, there is absolutely no way these companies
> can exist!
> I challenge anyone to explain how the cost of a REAL REORG will cost
> more than $125BB, which is where we are headed under the current
> legislation-----and the DIRT WILL STILL COVER THE COFFINS .........
> only a few years later............
> Business as usual in DC!!!!!!!!!
> IMHO

Mar 13 09:53 AM