Car, RIP: Now for Argentine Automaker Bailouts

♠ Posted by Emmanuel in at 12/07/2008 01:55:00 PM
Reading today's headlines, you cannot help but think that the days of the internal combustion engine-powered automobile are numbered. I do not base this alone on the US case: GM, Ford, and Chrysler have demonstrated no aptitude in selling cars designed for the 21st century, and I do not hold much chance that they ever will. It's sad to think that politicians are becoming the final arbiters of the commercial viability of American car manufacturing when their market performance has more than clearly indicated that closing shop is the way to go.

It is fair to note that things are not much better in other parts of the world. European carmakers are still petitioning for EUR40 billion in handouts from European governments. Even the most sophisticated automakers light years removed from Captain Caveman-style Detroit spec are feeling the pinch. The major German automakers have announced production cuts. Mighty Toyota has now convened an "Emergency Profit Improvement Committee" (EPIC for short--get it?) to shore up profitability in the face of dwindling car sales worldwide. You'd have thought that significantly cheaper gas prices as of late would've cheered up these automakers, but no.

But, don't let the endless barrage of bad news for the global auto industry get you down. It appears that even LDCs are getting into the act of propping up the living dead, AKA zombie car firms. Get this: Argentina is now embarking on a plan to provide consumer credit to finance the purchase of locally made cars. Reuters reports that, to save jobs, cars are to be sold at cost by participating automakers. Do not go gentle into that good night:
Argentine automakers will sell basic models at cost through state-subsidized loans in a plan to protect jobs in Latin America's third-biggest economy from the global economic slowdown, government officials said on Saturday. Local plants of Renault SA, General Motors, Peugeot, Ford Motor Co. and other automakers will participate in the government's plan to protect 150,000 auto industry jobs and to keep production from falling steeply next year.

"We have agreed with the plants that these cars will be offered without a profit margin and the dealerships will also reduce their profit margin," Industry Secretary Fernando Fraguio told a news conference on Saturday.

The $890 million government auto loans program is part of a $3.8 billion economic stimulus package announced on Thursday by President Cristina Fernandez. Each automaker will offer two of its most economic models for the plan, while the government will provide three different financing packages with interest rates much lower than market rates, to be funded by the social security system.

Argentina's vehicle output is seen at 600,000 to 610,000 units this year, up 12 percent from last year. Officials said some 150,000 people are employed in the sector, including auto parts and auto sales.

Argentina's auto manufacturing, which accounts for 36 percent of the country's industrial exports, has been one of the first to feel the pinch as the economy slows, and executives forecast a 15 percent reduction in output next year which is what the government plan aims to avoid.