Special Report: Global Financial Crisis

    BERLIN, March 19 (Xinhua) -- The German automobile industry, one of the key pillars of the biggest European economy, has been hit hard by the global economic downturn.

    German auto exports slumped by 20 percent year-on-year in the fourth quarter of 2008, the German Federal Statistical Office said earlier this month.

    The sharp decline reflects the crisis the German economy is facing as the Wiesbaden-based office described motor vehicles and parts as the "most important" export goods for the world's top exporter.

    UNCERTAIN FUTURE

    In the latest attempt to save one of Germany's biggest automakers Opel, Germany's Economy Minister Karl-Theodor zu Guttenberg visited the United States, where Opel's parent General Motors is based, to discuss a government bailout of Opel.

    After his talks with GM representatives and U.S. officials earlier this week, GM agreed to keep only a minority holding with Opel and thus to dispel concerns that German subsidies could be siphoned off to GM.

    Eighty years after being acquired by GM, Opel was plunged into crisis by its beleaguered parent, which is facing the threat of bankruptcy under the impact of the worst financial crisis since 1930s.

    If Opel collapses, around 400,000 jobs will be lost across Europe, with 25,000 of those at the four plants in Germany.

    To exit the quagmire, GM has submitted to the German government a bailout plan that features 3.3 billion euros (4.2 billion U.S. dollars) in aid from Germany and other European countries where GM factories were based.

    However, Chancellor Angela Merkel has said her government would aid Opel only if the benefits outweigh the costs.

    Earlier this week, Merkel said the German government could offer "normal government instruments, such as guarantees" if Opel could find a private investor "who makes clear he sees positive prospects for Opel in a European network."

    But finding an investor is hard these days. According to German media, not only German carmakers BMW and Daimler have rejected, but also French, PSA Peugeot Citroen, Indian car maker Tata and the Chinese producers Geely and Cherry.

    Nevertheless Merkel will be reluctant to see Opel collapse before the general election in September, as its demise would go down badly with voters, analysts said.

    Meanwhile, Europe's biggest carmaker German Volkswagen seems more financially sound than its competitors. In 2008, VW globally sold 6.3 million cars, 0,7 percent more than previous year, and its global market share rose to 10.3 percent.

    But in the first two months of 2009, VW sold 15 percent fewer cars, compared to the same period last year. The global car sales sank about 23 percent in the period.

    Still, Martin Winterkorn, board chairman of VW, was quite optimistic that his company can do better than other automakers, thanks to cost cutting and new car models.

    In 2009, about 60 new models and variations will go on sale. The world's third largest car producer has vowed to catch up with world leader Toyota by 2018. But whether such ambition could materialize under the current uncertain economic climate remains to be seen.

    Late last month, VW announced that it will cut all its temporary staff as part of its efforts to tide over the ongoing financial crisis. Volkswagen has about 16,500 temporary workers among some 330,000 employees worldwide in 2008.

    Foreign carmakers in Germany have also been hit by falling demand amid old concerns over high wages and rigid labor regulations in the country.

    Amid mounting pressure, U.S. carmaker Ford announced earlier this week that it will not close its factories in the German city of Cologne and move to Romania.

    With about 17,500 employees, the Cologne branch is the biggest Ford factory in the world. Currently, the Cologne factories only produce some 150,000 motors each year, down from 680,000 in the good times.

    A Ford spokesperson said recently that there will be no "market recovery in the foreseeable time." It's estimated that Ford's sales in Europe will decline from 17.5 million to 16 million cars this year.

    INNOVATION KEY TO TACKLE CRISIS

    Wendelin Wiedeking, CEO of German sports car manufacturer Porsche, which holds 51 percent of VW, said one reason for the bad results is that many car producers in Germany ignored technical innovations.

    In a recent interview with Swiss daily Neue Zuercher Zeitung, Wiedeking noted that some companies still produce the same motors as 20 years ago and thus lost attractiveness.

    Regarding the current Opel crisis, Wiedeking warned against a potential "chain reaction" in case the carmaker should fail.

    The German government has already demonstrated its willingness to help its ailing car industry by introducing a 2,500-euro-cash incentive for car owners who trade their old cars for new ones.

    Car sales in Germany jumped 22 percent in February year-by-year thanks to the stimulus plan. According to a report by the CAR-Institute at University Duisburg-Essen, small and inexpensive cars benefit more from the incentive than do high-level cars like BMW or Daimler.

    But a substantial recovery of the auto market may not be expected anytime soon.

    According to international consulting company Roland Berger, the global car market may not get back on track before 2012. If so, the government may find it necessary to do more to rescue the German auto industry and the German economy at large.