Press Report : To ditch a car subsidiary is new vogue

John Reed in Detroit, Financial Times, 24th February, 2009

Worldwide, people defaulting on mortgages are leaving homes behind. In the car industry, manufacturers are cutting their losses and ditching subsidiaries.

Cash-strapped owners of overseas marques are turning to their host governments with politically charged pleas for public funds. Write us a cheque, they say in effect, or we will need to close up shop at some of your country’s largest employers.

LDV, to be cut loose by Russia’s GAZ Group, is the latest case in point. GAZ’s Chairman argues for UK government money. The government says the company needs to look to GAZ.

Last week General Motors, in a restructuring plan presented to the US Treasury as a condition of its $13.4bn bail-out loan, said it would loosen or sever ties with some of its big European operations, including Germany’s Opel and Sweden’s Saab. Saab filed for protection from its creditors on Friday and seeks Swedish government help to stay in business.

GM will deliver a restructuring plan for Opel in the next few days, a spokesman for the Detroit company’s German brand said on Monday. Angela Merkel’s government presses GM to present a plan before it decides on action about Opel.

Intensifying demands on governments by carmakers take place as faltering banks and widening fiscal deficits are straining their resources.

GM’s decision to leave Saab to an uncertain future has angered some owners of its vehicles who now worry about future parts and service. ‘If I had known GM was going to drop Saab, I don’t think I would have purchased the vehicle,” says Caroline Chartier, a New York-based public relations expert who bought a used 9-3 saloon a year ago.

She says she did not know the Swedish brand was owned by GM when she bought her car. ‘Now I have a car that’s possibly going to be obsolete, and I’m also going to have to pay my tax money to help bail out GM,” Ms Chartier says.

GM has sought to reassure Saab owners by promising to honour warranties. It also says parts and service will be available as the brand reorganises.

It says the brand needs $1bn to remain solvent this year and to see two new vehicles to market. It wants Sweden’s government to put up $600m of that money. However, on Monday, Maud Olofsson, Sweden’s industry minister, said the state would not consider loan guarantees for Saab unless GM found a private investor to back its business plan, meaning the business could still fail.

Anxiety about global carmakers’ financial problems is especially intense in Britain, where the bulk of the industry is foreign-owned. GM and India’s Tata Motors, owner of Jaguar Land Rover, led calls for a bail-out by Gordon Brown’s government, which recently approved £2.3bn of loan guarantees for the industry.

GM’s increasing problems have prompted suggestions that it might close one of its two UK plants, in Ellesmere Port and Luton.

However, the company said on Monday it had made no new bail-out request for the UK brand, Vauxhall, and that it had no plans to close plants.

[Source: Financial Times]

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