EU: Carmakers won't get a free ride in state help

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BRUSSELS, Belgium: The European Union's industry chief said Friday ailing automakers should not expect a free ride in state aid to overcome the financial crisis.

EU Industry Commissioner Guenter Verheugen said carmakers should get better access to investment cash to keep the industry in step with technology, but insists the 27-nation bloc will not alter the global car market by funding overproduction.

"We have no intention to distort competition. We have no intention to allow a race for subsidies," he told reporters. "There is no free ride for the member states and nobody asked for that."

Instead he said the EU would seek to coordinate measures to boost sales, including better taxation, scrapping incentives and more public procurement.

Verheugen warned the slump in the market would get worse this year compared to 2008, with sales to decline by up to 20 percent and millions of jobs threatened.

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An informal meeting Friday of the EU's industry ministers concluded that long-term investments to make safer and cleaner cars held the key to the survival of the EU's biggest employer.

Verheugen also insisted that once Barack Obama is confirmed as U.S. president, the EU would look for a trans-Atlantic initiative to tackle the automobile crisis at a global level.

In Europe, the sector faces three key challenges: people simply don't want to buy a new car in uncertain economic times; the industry itself was burdened with an overproduction of up to 20 percent already before the crisis; and because banks are at the heart of the crunch, car producers find it hard to get the necessary funds to invest for the future.

"Public support for this sector is decisive," said Verheugen after the meeting. Yet, he insisted the EU would not revert to old policies when national companies were jealously shielded from foreign competition and governments were allowed to simply fund ailing companies out of a crisis.

In the last quarter of 2008 the demand for new cars in Western Europe dropped by 19.3 percent compared to the year-earlier period.

Verheugen said he expected a further drop by up to 20 percent this year for passenger cars and decreases of about 30 percent for heavy-duty vehicles.

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