Carmakers warned nearing loans limit

Publication date: 10 March 2009

Carmakers warned nearing loans limit

Philippe Maystadt, the European Investment Bank president, on Monday signalled that the institution was approaching the limits of its support for ailing car makers. Speaking at the bank’s annual press conference, Mr Maystadt, confirmed that the EIB planned to authorise €7bn in loans for car makers in the first half of the year, with most of the funds to develop clean cars. Yet he warned carmakers – who have asked the EIB for some €40bn in low-interest loans – that the bank was not likely to offer them much more because it did not want to be over-exposed to the industry.

“It would be a mistake to concentrate a too big part of our lending on one sector,” Mr Maystadt said, noting that the auto industry would now account for more than 10 per cent of its €66bn in expected lending this year. Mr Maystadt said he was prepared to a do “a bit more,” but added: “Doing even more for autos would mean doing less for other sectors.” Those comments come in response to a persistent complaint from European automakers that the EIB has been too slow and stingy with its support.

Last week, Carlos Ghosn, chief executive of Renault, and the current president of the European Automobile Manufacturers Association (ACEA), the industry trade group, urged governments to do more as he predicted that the industry was facing a 25 per cent drop in output this year. GM has warned EU member states that its European operations could become insolvent next month, placing 300,000 jobs at risk. In addition to asking the EIB to step up its overall lending, Mr Ghosn and other auto executives have also called for it to scrap a €400m ceiling on the amount of money it will lend to a company in a given year.

But Mr Maystadt indicated on Monday that he was inclined to maintain that ceiling because otherwise the money would flow almost entirely to just a handful of companies that were already well-acquainted with the EIB’s procedures. The EIB, the European Union’s long-term lending arm, raises money from public markets in order to fund projects that support EU policy objectives. The bank is planning to increase its bond issuance this year to €70bn from €59bn in 2008 as it tries to play a bigger role in restoring economic growth. It has issued €24bn of that amount in the first two months of the year, according to Mr Maystadt, paying higher rates than usual amid a crowded market of government borrowers. However, Mr Maystadt reiterated his intention that the EIB not lower its lending standards or veer from its mission to bail out troubled companies. “We don’t want to compromise the quality of the projects simply because we are asked to do more and faster,” he said.

Source: Financial Times