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Dimming hope for European auto giants

The industry seeks help, but analysts wonder if falling demand can be reversed before makers resort to deep job cuts.

By Jeffrey WhiteCorrespondent of The Christian Science Monitor / November 25, 2008

Production continues: Despite drops in demand, cars continue to roll off the line at Opel's headquarters in Germany.

Alex Grimm/Reuters

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Mlada Boleslav, Czech Republic

Early this year, Skoda Auto told the 22,000 employees in its flagship production factory here that they'd have to begin working Saturdays if the company was to meet the seemingly boundless demand for its vehicles in Western Europe and Asia.

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But the global financial crisis has since dealt a turnaround. Now, the company is preparing to send its entire workforce home for a week next month for a temporary halt in production. December will be the third straight month of forced vacations – a downtime that translates to 31,000 fewer Skoda cars rolling off assembly lines and significantly less pay for employees.

"It's not easy to explain to workers why we have to do this," says Jaroslav Cerny, of Skoda. "Now, we have to say not only can't you work on Saturdays, but now you can't work on weekdays, either."

Like their counterparts in North America, Europe's carmakers are battling a slumping economy and plunges in consumer demand. To combat that, the European Union this week is expected to unveil a stimulus package for struggling industries, including an anticipated $50 billion for the automotive sector in the form of credit from the European Investment Bank.

Fears are mounting that European carmakers will follow the lead of General Motors, which last Friday pledged to cut production at five North American plants, among other cost-saving measures, as it tries to convince a skeptical Congress to agree to a $25 billion bailout.

Last week, Opel, Germany's third-largest car producer and a GM subsidiary, became the first European carmaker to seek government help. Its executives met with Chancellor Angela Merkel to discuss a $2.5 billion loan guarantee.

Analysts, including Jan Hagen, with the European School for Management and Technology in Berlin, say efforts to maintain car production through direct injections of cash into Europe's car industry does little to address a significant issue: tumbling consumer demand.

"People are afraid of making big personal investments like on a car," Mr. Hagen says.

Demand for cars dropped nearly 15 percent last month across Western Europe. Carmakers have responded by making cuts.

German giant Daimler will halt all work for one month starting Dec. 11. BMW closed its plant in Leipzig, Germany, for nearly a week this month. France's Peugeot-Citroën, the second-largest carmaker in Europe, plans to reduce production some 30 percent and lay off 3,500 workers. Renault, another French carmaker, plans to lay off 6,000 worldwide.

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