Germany's key auto sector is a major beneficiary of government support measures announced on Nov. 5 while firms like giants BMW and Daimler may also get access to a separate bank rescue package. Chancellor Angela Merkel has said that "the auto sector plays a key role" in Europe's biggest economy but times are hard, with car sales slumping 8% in October and expected to fall further as the global credit crunch bites deeper.

Several German car makers have issued profit warnings and said they will cut production, with assembly lines already idle at BMW and Opel, and temporary workers contemplating layoffs at Volkswagen and parts maker Continental.

One of the government measures will suspend the state road tax levied on new cars for a year, which could be extended for a second year in the case of autos that meet strict new EU environmental standards. The measure will cost 1.4 billion euros out of Berlin's four-year 23-billion-euro stimulus plan for the economy as a whole.

Auto company leaders expect a lot from the move in a country where the average age of a car is a relatively elderly eight years. Eckehart Rotter, spokesman for the auto industry federation VDA, said "the measure will aid the entire market." He said he was convinced the move would benefit the bigger cars hit by higher taxes which are a specialty of German manufacturers.

Berlin has already tried other steps fot assist the auto sector. For the past several months, Merkel has tried to get the EU to ease greenhouse gas reduction rules which are believed to penalize German autos that generally burn more fuel than those in France or Italy.

The automakers who have separate finance arms could also be eligible for help under a new German banking sector package worth nearly 500 billion euros. BMW, Daimler and VW own finance arms which which offer auto loans and leasing deals, very lucrative activities until the financial crisis struck. BMW could ask the state for loan guarantees, a spokesman said, although board member Friedrich Eichiner said: "We have not yet made a final decision." Representatives of the VW and Daimler banks said they had rejected this option for now. Such help, however, may still not be enough to help the industry through its current travails as demand at home and especially abroad falls sharply. Nothing in the plan will help exports and suspending the new car tax does not differentiate between German and foreign brands, auto specialist Ferdinand Dudenhoeffer noted.

The government will consequently spend more than one billion euros to "sell at best 70,000 German cars over two years," he said, nothing compared with more than six million vehicles expected to be sold in Germany in that time.

Copyright Agence France-Presse, 2008