German federal and state governments are working on a $2.6 billion (two billion euro) bailout package for ailing carmker Opel, a subsidiary of General Motors Corporation of the US.
Opel sought government help after its management was left with no cash to run the company.
Germany, which is confirmed to be in a recession, said it wants to help Opal, General Motors' struggling German subsidiary, but the aid will be limited to the German company and the government wants to make sure it does not percolate over to Opel's US parent or lead to demands for support from other companies.
Countries across the world, in a quandary over the prospect of large scale job losses, which could worsen the economic scenario and deepen an already bad recession, are planning to help auto companies badly hit by falling demand.
Opel, which sought aid from the federal and state governments, says its troubles have been compounded by the problems at its parent company in the US. Opal wants the German government to guarantees to finance its development and assembly facilities if its parent company stops supplying cash. The German subsidiary needs more than 1 billion euros ($1.27 billion) to survive, according to GM Europe chief Carl-Peter Forster.
Opel's parent GM said earlier this month that its cash holdings would fall short of the minimum needed to run its business without new funding or other drastic action.
German chancellor Angela Merkel, speaking at a news conference after meeting Opel executives, said a decision on whether the carmaker would need a guarantee from the federal government and German states should be made by Christmas this year.
''We discussed a possible guarantee that would secure a medium-term liquidity requirement.''Merkel said, adding, ''It's not yet been decided whether such a guarantee would even be necessary. It depends on developments in the United State," Merkel said. "But from the German government side, we've said we want to constructively examine the possibility," she said.
A crisis ridden automotive sector is a major source of worry for the German government as almost twenty per cent of workers are employed, directly or indirectly, in the sector. Opel is the first European carmaker to ask the government for help. Opel employs about 25,000 in its German plants in Ruesselsheim, Bochum, Kaiserslautern and Eisenach.
Although Merkel has said that Opel was a one-off case and that no other industries had asked the government for help, other German carmakers are also in a bad way. Daimler has said it would shut two big German plants for a month due to a sharp drop in demand. Auto parts supplier and maker Robert Bosch GmbH said earlier this month it would shorten the working week for 3,500 workers at a plant in Germany for six months.
Volkswagen has reported a 5.1 per cent drop in group vehicle sales in October. Renault's chief operating officer Patrick Pelata has said that he expected the European automobile market to fall by around 20 per cent in 2009.
Europe's largest economy Germany, is witnessing the worst recession in at least 12 years. The economy contracted more than economists expected in the third quarter of 2008-09. The economy last contracted this much over two consecutive quarters - in 1996 - which technically means the country is in a recession. Gross domestic product dropped a seasonally adjusted 0.5 per cent from the second quarter, when it fell 0.4 per cent, the Federal Statistics Office in Wiesbaden said.