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TOPWRAP 8-US automakers seek aid, Europe looks to bolster banks

Published 12/02/2008, 04:30 PM
Updated 12/02/2008, 04:32 PM
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* Auto makers begin to detail turnaround plans

* EU seeking ways to get banks lending

* Reserve Bank of Australia cuts rates by full point

* Bank of Japan seeks to help cash-strapped companies

* U.S., European stocks rebound, Asian stocks tumble (For full coverage of the financial crisis [nCRISIS])

By Burton Frierson

NEW YORK, Dec 2 (Reuters) - U.S. automakers sharpened their pleas for a government lifeline on Tuesday and car companies around the world cut costs and production as the global economic crisis continued to ravage the industry.

Europe and Japan sought new ways to make credit available in an effort to roll back the tight lending conditions that have pushed the world's largest economies into recession and sent manufacturers into a deep slump.

U.S. automakers began submitting plans to Congress as they tried to show they have a viable future. Ford Motor Co led off with a request for a $9 billion credit line and promised big changes ahead of the government review.

General Motors Corp asked the U.S. government to save it from failure by extending $12 billion in loans and another $6 billion in a credit line.

While critics have charged that many of the problems plaguing Detroit's Big Three are of their own doing, politicians worry that without government aid, the companies could collapse and millions of jobs would be lost.

"The greater the delay in help, the more damaged the industry becomes," Michigan Gov. Jennifer Granholm said in an interview with Reuters.

"Because Congress has not acted, even if nobody has declared bankruptcy, nobody is in the showrooms of this industry because they don't know whether Congress is going to act," she added.

GM, Ford and Chrysler failed two weeks ago to obtain a $25 billion bailout from lawmakers unconvinced that taxpayer money would be well spent considering the industry's horrible financial prospects.

The global car industry has been reeling from flagging demand and evaporating consumer credit, forcing automakers to slash production to cut swelling inventories, though the pain has certainly not been limited to them.

Industrial conglomerate General Electric Co plans to scale back its hefty finance arm and cut jobs across its range of businesses as it braces for what it expects to be a worsening economic environment next year, executives said. [ID:nN01506020].

The Wall Street Journal reported Goldman Sachs was likely to report a net loss of as much as $2 billion for the fourth quarter, its first loss as a publicly listed company. [ID:nBNG359558]

RUNNING ON EMPTY

Still, the car industry's troubles were front-and-center on Tuesday, with further news of production cuts and tumbling vehicle sales in Europe, Asia, Africa and the United States.

World No. 2 truck maker Volvo said order bookings had fallen "substantially" as the financial crisis weakened market demand, prompting it to cut some production in the fourth quarter.

U.S. auto sales fell for the 13th consecutive month in November, led by a 41 percent drop at General Motors Corp , and major automakers said there was no sign that demand would rebound in the next six months in the world's largest vehicle market. [ID:nL2340060]

Industrywide auto sales in November were down about 35 percent to a seasonally adjusted annual sales rate of around 10.5 million, the lowest in over two decades, the automakers said.

New car registrations in Germany, Europe's largest car market, dropped 17.6 percent in November from a year ago, the VDIK association of foreign carmakers said, adding to a string of similar news across the continent on Monday. [ID:nL2327482]

It was the same story in Africa's top economy, South Africa, where new vehicle sales plunged 28.3 percent in the month. [ID:nL2283369]

In response to the downturn, Japan's Toyota Motor Corp <7221.T>, the world's biggest auto manufacturer, and Tata Motors , India's biggest, both revealed new production cuts to avoid a build-up of unsold stock. [ID:nT43280] [ID:nBOM254612]

Despite the gloom, U.S. stocks rose nearly 4 percent <.GSPC> in the wake of Monday's stunning losses, helped by encouraging statements from Ford. European shares gained nearly 2 percent but Japan's stock market tumbled.

Ford said it expects to break even or be profitable in 2011. Investors seized on the outlook and looked past a 30 percent drop in November sales and a warning that the economy continues to weaken. Its shares soared as much as 13 percent.

Chrysler LLC said it would not survive without an emergency government loan.

The company's president, Jim Press, added that bankruptcy for the smallest of the three Detroit automakers was not an option and that alliances would be an important part of the industry's future. He did not say how much money privately held Chrysler was seeking from the government.

HOW LOW CAN THEY GO?

In the financial sector, the European Commission promised measures to prompt state-aided banks to start lending, but EU finance ministers squabbled over plans to counter the downturn.

Australia slashed interest rates and other countries are expected to follow this week. Australia's Reserve Bank cited the perilous state of the world economy when it cut the benchmark cash rate a full percentage point, to 4.25 percent.

The Bank of Japan kept its key rate at 0.30 percent at an emergency meeting to deal with a cash squeeze on Japanese companies, which face slumping export markets. [ID:nT216819]

However, it unveiled 3 trillion yen ($32 billion) in new measures to help corporate funding. The BOJ will accept a wider range of corporate debt, including for the first time debt with a triple-B rating, as collateral and launch a new plan to make it easier for banks to make loans to companies.

Britain, the euro zone and New Zealand will almost certainly cut interest rates later this week. In addition to more rate cuts, the U.S. Federal Reserve is weighing other responses with its benchmark rate nearing zero.

Euro-zone producer prices fell more than expected month-on-month in October, data showed, underlining the scope for a deep ECB interest rate cut. [ID:nL2336404]

"The message for the ECB is clearly: don't worry about inflation, cut now, and a lot. I would say 75 basis points, it's a minimum," Bank of America economist Holger Schmieding said.

In Asian markets, Japan's Nikkei average tumbled 6.4 percent as the yen surged. Hong Kong's Hang Seng index lost 5 percent. (Reporting by Reuters bureaus worldwide; Editing by Dan Grebler)

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