Volkswagen and PSA Peugeot Citroën are looking at tapping a European Central Bank loan program designed to aid euro zone banks in a move that could help ease funding costs for the region’s carmakers.
Germany’s Volkswagen on Thursday said that it was considering accessing the second phase of the ECB’s longer-term refinancing operations (LTRO), a three-year loan program launched in December that has helped ease funding pressures on banks hit by the euro zone sovereign debt crisis.
Peugeot-Citroen , Europe’s second-largest carmaker by sales, has also said that its Banque PSA lending arm is in talks with the ECB about borrowing money and would potentially offer about €1 billion as collateral.
More than 500 banks across Europe borrowed €489 billion from the ECB at 1 per cent, an operation that helped to avert a liquidity crisis in the financial system that could have thwarted attempts to revive the region’s economies. A second tranche of the LTRO is due at the end of February and many expect at least a similar take-up of funds.
While the LTRO is not open to companies, Volkswagen and Peugeot would be able tap the facility through their banking arms, which they use to offer consumer credit to car buyers.
Stefan Rolf, head of asset backed securization at Volkswagen Financial Services, said that the competitive pricing on the LTRO meant it made economic sense to put it into the mix as one of a number of ways of funding Volkswagen. Volkswagen, which has ready access to capital, said it had achieved more than 8 million vehicle sales for the first time in January.
Suki Mann, head of credit strategy at Societe Generale in London, said carmakers and other industrial groups that have banking arms clearly believe that they may be able take part in the second phase of the LTRO, potentially using consumer loans as collateral.
“This is an alternative source of funding and a very cheap one at that,” he said.
Industrial conglomerate, Siemens and German carmaker BMW , which also hold bank licenses, both declined to comment on whether they would try to access the LTRO. Renault has no plans to tap the LTRO funds, according to people familiar with the matter.
“Given the explicit objective of the LTRO was to reduce the credit crunch and get credit flowing again, helping people to buy a car would be a legitimate use of ECB money,” said Huw van Steenis, banking analyst at Morgan Stanley in London.
Carmakers rely on large amounts of liquidity to fund their manufacturing and lending operations. After the banking crisis of 2008, some US and French producers received direct government bailouts, and many others tapped state-backed credit lines such as TARP in the US.
Peugeot on Wednesday disclosed sharply lower 2011 earnings and said it had burned through €1.6 billion of cash in 2011 and taken on €2.2 billion of additional debt last year. The French carmaker is particularly exposed to the euro zone crisis because of its large sales in France, Italy and Spain, but the slower market and intense competition this year is dampening profitability at all the car sector’s mass-market producers.