EU lender's rebuff on auto loans likely to inflame ailing carmakers

Publication date: 10 March 2009

EU lender's rebuff on auto loans likely to inflame ailing carmakers

Cash-strapped carmakers were rebuffed yesterday by the European Union's long-term lending arm as it sought to draw a line under its financial support for the troubled industry. Philippe Maystadt, president of the European Investment Bank, warned that the bank was not likely to extend much more than €7bn ($8.8bn, £6.4bn) in loans to carmakers this year, well below the €40bn the industry had sought. "We are ready to do a bit more, but there are some limitations in terms of sector concentration," Mr Maystadt said, noting that the industry already accounted for more than 10 per cent of its expanded €66bn lending plan this year.

"It would be a mistake to concentrate a too big part of our lending on one sector," he added, noting that further support for automakers, who received about €2bn in EIB loans annually before the crisis, would reduce the bank's ability to support other industries. Mr Maystadt's judgment is likely to further inflame automobile executives, who have slammed the EIB for being too slow and too stingy at a time when the industry's survival is at stake. The European Automobile Manufacturers Association (ACEA) was not available to comment last night.

During a trip to Brussels last week, Carlos Ghosn, chief executive of Renault and the current ACEA president, warned that the industry was facing a 25 per cent drop in output this year. Mr Ghosn implored the European Commission and member states to step up and co-ordinate their support. Several EU member states are weighing whether to commit taxpayer money to ailing carmakers that have warned hundreds of thousands of jobs are at risk. The latest was General Motors, which said its European arm could be insolvent by next month without support. In addition to demanding more money from the EIB Mr Ghosn and other auto executives have called for the bank to scrap a €400m ceiling on funds it will commit to a company in a given year.

However, Mr Maystadt indicated yesterday that he was inclined to maintain that ceiling. If it were removed, he argued, the bulk of the money would flow almost entirely to a handful of companies that were already well acquainted with the EIB's procedures. "The result would have been that in six months' time that practically everything would have gone to one country," Mr Maystadt said, without specifying which. Some politicians appear to be taking a firm line. Maud Olofsson, Sweden's energy and enterprise minister, last week blasted GM for its stewardship of Saab, and said she would prefer to support smaller companies that have been affected by the crisis but have less political clout.

"It's so much money for a company that hasn't done what they should do." Ms Olofsson said.

Source: Financial Times