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Global Car Industry Reels Amid Economic Slowdown

One of the economic sectors hardest hit by the global financial crisis is the car-making industry.

In the United States, two of the biggest U.S. automakers say they face bankruptcy if they do not get government assistance. In Europe, EU leaders are already aiding their auto industries. And, from Japan to Russia, the troubles of Western carmakers are directly impacting the viability of other auto and auto-parts producers around the world.

What is happening to the global car market and where do things go from here? RFE/RL correspondent Charles Recknagel asked Jason Stein, publisher of the Munich-based journal "Automotive News Europe."

RFE/RL: Everywhere, car producers are in serious trouble. And it seems the troubles in one market immediately spill over to another. For example, on December 11, the U.S. Senate refused a $14 billion aid package to the "Big Three" U.S. carmakers. Following the news, Japan's stock market has dropped almost 6 percent. How badly hurt is the auto industry and why is this a worldwide problem?

Jason Stein:
I think it is significantly hurt, mostly because the world has become one global economic marketplace and global automotive-industrial marketplace. With the links that automakers have with similar suppliers, this really creates a house of cards financially, because for the most part what happens in America will reverberate within seconds around the world given the fact that you have so many close connections when it comes to manufacturing, production, that are all intertwined.

A lot of these interconnections may not be immediately apparent to the public. What is the impact of what happens in the United States upon Russian carmakers, for example?

Stein: They are extremely tied in with the same suppliers who are working with [U.S. carmakers] Ford and General Motors, [Germany's] Daimler, and other automakers that all have interconnections. So, if the Russian-U.S. joint venture GM-AvtoVAZ, which is in Togliatti, cannot sustain its business, then that is going to reverberate around to other carmakers.

The GAZ group, which is the second-largest Russian carmaker, was already forced to cut some of its production at its Volga location and that is built on the Chrysler Sebring [car model]. So, you see all of the different connections.

It is not just the U.S. domestic industry, it is not just the Russian domestic industry, but it is also the fact that the success that Western automakers have had in building plants and establishing capacity and generating sales in the Russian market is now directly tied to the lack of fortune that those same automakers are having in other parts of the world.

Multinational Solution Needed

Are these problems now too big for governments to address individually? For example, we are seeing EU leaders speaking at their summit in Brussels which ends today about aid to European carmakers. But you seem to be suggesting that carmakers in one country cannot be rescued in isolation from carmakers elsewhere.

Stein: We saw this week that Sweden's automakers were reacting positively to their government's plans to provide up to 2.5 billion euros [$3.3 billion] in credit guarantees and emergency loans.

But who are we talking about? We are talking about Volvo and Saab. Well, Volvo and Saab are still linked to their North American partners. Yes, they used to be stand-alone companies; yes, they used to have their own balance sheets; but having, for example, one region or one nation try to come up with one solution is not going to solve the problems of the parent company.

RFE/RL: As we mentioned, the crisis for U.S. carmakers reached a high point on December 11 with the Senate's rejection of a bailout package. And for all the reasons you have just mentioned, the whole world has a stake in what happens next. How do you think the bailout crisis will end in Washington for the U.S. carmakers?

Stein: Ultimately, they are going to get the money they need. You know, it has been said before, they are too big too fail. I think given the last attempt [on December 11], events would require President [George W.] Bush to intervene and inject some emergency funding out of the original $700 billion that was approved [by Congress for bailing out the U.S. financial industry]. That is probably the route that they are going to go.

You know, this is coming down to later than the 11th hour and without some resolution immediately, and that would be probably within the next week, you are going to start to see some significant bills not being paid and some significant issues popping up. I am not sure where it is all going to go, I don't think anyone could have predicted that any of this would have happened six months ago.