Too Many Moving Parts

Politicians are desperate to support domestic car industries—but these days there’s no such thing.

In a recent report to the World Trade Organisation’s (WTO) 153 member states, Pascal Lamy, the club’s director-general, sounded a warning about state aid intended to mitigate the economic crisis. It must not, said Mr. Lamy, break WTO rules or discriminate against foreign companies. Not surprisingly, he is worried that help for banks could distort competition. But he pointed to another industry too: carmaking. Although he chose his words carefully-many measures are still sketchy-Mr. Lamy believes that rich countries’ support for their car industries could discriminate against rivals in developing countries.

He is right about one thing. The list of countries offering or planning relief for their automotive industries is long and growing. The reason is not hard to find. Stricken carmakers do not rank with stricken banks as systemic threats; but restoring them to health is still regarded as vital by almost every big, advanced economy. The industry nurtures skills in design and technology that rub off on other sectors; and its supply chain is so long that in some countries about one job in ten depends on it.

What began in America last autumn has spilled over to almost every other leading car-producing country. European policymakers’ first response to the bail-out considered by Congress for Chrysler, Ford and General Motors (GM) was hostile. In November the president of the European Commission, José Manuel Barroso, said the commission might file a complaint with the WTO if the plan breached the trade body’s rules. Little has been heard from Mr Barroso on the subject since.

His reluctance is partly explained by the similar (if smaller) plans since hatched across the European Union. But it is based too on the knowledge that a collapse of Ford and GM in America would have an incalculable impact on their international operations, many of which are in Europe. Late last year, the fear that GM might enter bankruptcy prompted the German government to start talks with Opel, GM’s continental European subsidiary, to try to shield it from the consequences.

The bail-out for Chrysler and GM (Ford still hopes to struggle through on its own resources) at $17.4 billion (and counting) dwarfs anything elsewhere, but that is mainly because among the world’s volume carmakers GM is still very big and Chrysler uniquely feeble. If anything, other countries have reacted faster than America, and with less political controversy.

One measure that is gaining in popularity is incentives to trade in older cars for new or nearly new ones. France already has such a scheme; Germany has put money aside for a similar one. Both countries are willing to go further. Peer Steinbrück, Germany’s finance minister, has said it would be “fatal” not to support German carmakers when competitors in America were receiving billions of dollars. He was echoing France’s prime minister, François Fillon, who said last month that the industry could expect loans and loan guarantees worth €6 billion ($7.8 billion)-if the money was used to keep French factories open.


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