Politics pollutes EU auto industry economics

With massive overcapacity in the automobile sector, European governments would be well advised to let the market decide the fate of stricken US car giant General Motors' European subsidiaries.

But German politicians are unlikely to be able to keep their hands off in a general election year, despite pressure from rival German manufacturers not to aid Opel. The GM unit employs 25,000 workers directly in Germany. Add to that suppliers, dealers and garages, and unions say 400,000 jobs could be hit.

Some argue that Opel is "systemically important", like a giant bank. With four other German carmakers in the field, that is nonsense. But its collapse before the September election would be political dynamite, with the left-of-centre Social Democrats already accusing Chancellor Angela Merkel's conservative Christian Democrats of fiddling while Opel burns.

Of course, the demise of Opel's would not be cost free. The Centre for Automotive Research, a car industry forum, estimates that letting Opel go bust would cost the German state a cumulative 6.5 billion euros (Dh30.87 billion) in unemployment benefits and wider liabilities - twice the amount GM Europe is seeking in state aid. But saving jobs by keeping Opel alive artificially, could cost jobs at other, healthy, manufacturers.

Opel had 8.4 per cent of the German market last year and 7.8 per cent of European sales. Its mid-range Insignia has just been voted 2009 European Car of the Year.

It is unclear whether GM Europe, in whole or in parts, is a going concern as the European units are so intertwined with their loss-making US parent, which owns their patents. Creating an autonomous European company is a legal minefield. GM has said it wants to retain more than a 50 per cent stake in the resultant company because it sees Opel's fuel-efficient smaller vehicles and planned electric car as key to its own survival strategy.

Opel dealers agreed on Wednesday to form a joint company to buy a 20 per cent stake in the carmaker, that would be financed partly by a 150 euro levy on each car sold for three years.

But so far no industrial investor has expressed interest in buying a stake in GM Europe, and the main German car makers - Volkswagen, Daimler and BMW - have ruled it out. They are also lobbying Berlin against a state rescue. That's hardly surprising since in a shrinking market, every car not sold by Opel is a potential sale for hard-pressed rivals. Industry analysts say the European car sector has an overcapacity of up to 5 million units. GM Europe made 1.5 million vehicles last year.

The European Commission has summoned GM's management.

Ministers from the six EU states where it has plants - Germany, Britain, Spain, Sweden, Poland and Belgium - to talks to try to coordinate any rescue measures.

Opel is asking for 3.3 billion euros in government loan guarantees, 2.6 billion euros of it from Germany, as part of a restructuring plan, which would include pay and job cuts. That makes sense only if an industrial partner is willing to take a significant stake.

Otherwise, Brussels should warn member states against distorting competition by providing special help to GM Europe. Swedish Prime Minister Fredrik Reinfeldt has set an example with GM's Saab unit, declaring: "If the world's largest carmaker hasn't been able to lay the groundwork for creating a profitable company ... I don't see why the state should be a better owner."