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Volkswagen: if the American carmakers can get bailout funds, so can we

It seems that the bailouts are now turning into a “Beggar Thy Neighbor” policy of aid for specific sectors of the global economy. First, it was finance as the banks were savaged by massive writedowns to their property and derivative holdings — with each nation competing with the next for the largest handouts to this vital sector of the economy.

Now, as the real economy has started to plummet, it is the auto sector. While all eyes are peeled on Washington and Detroit after the $15 billion bailout there, Volkswagen has quietly been lobbying the German government for its own bailout.

This is looking a lot like competitive bailout schemes as Daimler wants in as well. I can only imagine what Honda, Nissan and Toyota are thinking. Is this the 21st century version of competitive currency devaluations?

Below is my translation of a “Die Welt” article published just yesterday detailing Volkswagen’s manoeuvrings.

As the first auto finance company, VW Bank is requesting assistance out of the German rescue package. The financing arm of Volkswagen wants to be able to secure car loans. The competition is responding promptly. In order not to be at a disadvantage in competition, Daimler Bank is now leaving “all options open.”

Volkswagen Financial Services (VWFS) and its affiliated VW Bank want access to state aid. Requests for state guarantees were made for both VW subsidiaries, said a spokesman of Financial Services. He declined to give details as to the amounts.

With the guarantees, car loan refinancing should be secured. VWFS and VW Bank promote sales for the car maker, for example, by financing leasing contracts for the company’s new cars. Through the end of September 2008, the financial subsidiaries had contributed a profit of 744 million euros to group earnings.

Lower Saxony Prime Minister Christian Wulff (CDU) deems the applications valid. “The government welcomes the use of state guarantees for VW Bank by the federal government in order to ensure problem-free auto financing in 2009,” said Wulff.

VW Bank is the first bank of a car manufacturer to request state assistance. As recently reported in Die Welt, other financing arms of German car makers are considering slipping under the government umbrella for rescue. But unlike Volkswagen Bank Daimler Bank does not currently intend to take claim to state aid, according to a spokesman. “However, we hold all options open in order not to be disadvantaged by competitors,” said the bank spokesman.

Volkswagen Financial Services AG is, according to its own figures, the largest automobile financial services provider in Europe. The total assets of the company at the end of 2007 amounted to 52.3 billion euros. 6,100 employees are employed by the VW subsidiary worldwide, including approximately 3,800 employees in Germany.

Through the financial subsidiary, VW provides, amongst other services, auto financing. And it handles its own leasing business through the company Volkswagen Leasing. The corporate fleets of other companies are also cared for through this group. Through Volkswagen Bank GmbH, the company also offers current accounts as well. Volkswagen Bank also includes Auto Europe Bank, which financed non-company vehicles.

As you can see from this blurb, Daimler feels at a disadvantaged by the free money that VW is looking to get and I am certain all foreign car makers want to level the playing field with Detroit after they Americans have received massive injections of state aid. It looks like this process is just beginning.

Feel free to add your two cents on whether we are seeing escalating competition in bailout schemes.

Source
VW-Bank braucht staatliche Kreditgarantien – Die Welt
Congress reaches agreement on $15bn loan to GM and Chrysler – Telegraph

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

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