BMW considers applying for state aid

BMW, the German maker of premium cars, is considering an application for state aid for its financial services division to help ease the pain of its ailing dealer networks who are struggling to sell vehicles amid the global slowdown in demand.

BMW is following in the footsteps of Volkswagen's financial services division which has already applied for help, despite the fact that Volkswagen is flush with cash compared with other German manufacturers.

"The Federation of German Car manufacturers was asked by manufacturers to assess whether it made sense to seek state guarantees," said a BMW executive. "It was decided to do this on a joint basis to avoid the impression that any one company was in particular trouble."

He stressed that the board was still mulling over the move and that it applied only to the financial services arm.

On the one hand, top managers at BMW, based in Bavarian Ingolstadt, have to work out the future cost of securing a cash infusion from the state.

On the other hand, the company is being besieged by its dealers who cannot move cars from the showrooms.

Traditionally Germans prefer to lease their cars, or borrow on easy terms.

Financial service units, which are effectively house banks for the car makers, therefore hold the key to the survival of the industry. However, they are dependent on wholesale funding.

The rise of BMW, which overtook Mercedes as the world's largest premium passenger car maker in 2005, has been based on affordable credit to purchasers.

However, yesterday it announce that it will be putting 26,000 workers on shorter working hours in February and March as well as shedding temporary workers.

The main plants affected are in Bavaria - Dingolfing, Regensburg and Landshut - and a deal struck with union representatives guarantees that workers on short time will never earn less than 93 per cent of their after-tax wage packet.

Redundancies have been ruled out until 2014. But the main problem will be in the supplier companies who are likely to lay off workers on a large scale.These comapnies are already suffering from the lack of credit.

The government, anxious to slow down the rising unemployment, has offered cash handouts to those who get rid of their older models, nine years or older, and buy a new one.

The car companies are hoping this will give a boost to sales. So far though there is no evidence of a re-birth of the German car buyer. Companies are not renewing their fleets, taxis are disappearing from cities and exports are floundering.

[business.timesonline.co.uk]