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29th Mar 2024

European car makers scale back production as crisis deepens

  • Fewer new cars will spill onto European streets as manufacturers scale back production (Photo: EUobserver)

German and French car makers have temporarily closed their factories as demand falls due to the financial crisis. Meanwhile, additional German banks are seeking state aid, while Eastern European economies have also been badly hit, with the IMF bailing out Hungary and Ukraine.

German car giant BMW on Monday (27 October) stopped its production in Leipzig for four days, while Mercedes-producer Daimler announced a closure of up to five weeks in December, German media have reported.

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French car company Renault also temporarily shut down all of its local factories and some of its foreign plants, such as Dacia Mioveni in Romania, while Peugeot-Citroen said it would slash production by 30 percent.

Christian Streiff, chief executive of Peugeot-Citroen told the Financial Times that he did not rule out shutting down factories entirely, including in France, where Peugeot operates six plants. The French car maker expects demand for cars in western Europe to plummet 17 percent by the end of the year.

The slump in European car production echoes similar problems in the US, where the three big car giants, Chrysler, Ford and General Motors, are seeking federal aid as they might face bankruptcy within a year, according to the Wall Street Journal.

Elsewhere, Germany's banking sector is continuing to wobble, with two additional banks seeking state aid as a result of the crisis, West LB and HSN Nordbank.

Economic recession throughout the eurozone has also been signaled by the purchasing managers' index (PMI), compiled by data and research group Markit, which slid to 44.6 in October from 46.9 in September. The index's fall marked the fifth consecutive month of contraction, which is indicated by a reading of lower than 50 points.

IMF loans for Hungary, Ukraine

With Germany's growth succumbing and Ireland officially entering recession, which the Irish central bank predicts will last two years, the outlook is also grim for Eastern European countries.

The IMF unveiled two new members of a growing band of countries set to receive its help in the financial crisis, announcing a $16.5 billion loan for Ukraine and a "substantial" package for Hungary, AFP reports.

The deals, made public by IMF director Dominique Strauss-Kahn on Sunday, followed a $2.1 billion loan to Iceland on Friday and came amid appeals for assistance from other countries, including Belarus and Pakistan.

The IMF said it can provide a maximum of €160 billion in loans to countries facing financial difficulties.

For Hungary, Strauss-Kahn said a "substantial financing package" would be announced for the country in the next few days, with contributions from the IMF, European governments and other partners.

Both Hungary and Ukraine have been badly hit by the financial crisis.

Cashpoint panic

Ukraine stopped early withdrawals from savings accounts this month in a bid to halt a run on banks. The central bank has bailed out several banks and the Ukrainian stock market has lost more than 70 percent of its value this year.

The vast former Soviet republic is receiving less money from its main export, steel, because of a slump in global demand, and is using up foreign currency reserves to support its currency, the hryvnia, analysts say.

Hungary's vulnerability is primarily due to a large current account and budget deficit, a partially overvalued currency, low stocks of foreign reserves and a high level of short-term foreign currency debt, experts say.

Facing a sharp fall in the national currency, the forint, the country's central bank decided last Wednesday to raise its key interest rate by three points to 11.5 percent.

Officials have vehemently rejected comparisons between Hungary and Iceland, which faced bankruptcy due to the collapse of its supercharged financial sector.

'Swiftly dial back' interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

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