Kroes urged governments to avoid 'the costly trap' of a subsidy race [AFP]

Car manufacturers around the world have said that the economic fallout from the financial crisis is taking its toll on sales, leading to job cuts.

"I ask all governments to avoid the costly trap of a subsidy race," Neelie Kroes, the European Union competition commissioner, said in a speech on Friday.

"We have all heard calls, particularly in France, Germany and the United States, for support to be given to the car industry.

"All governments have to resist that."

Rolls-Royce Group PLC in the UK announced on Thursday it plans to cut up to 2,000 jobs next year.

The world's second largest maker of aircraft engines said it plans to slash 140 jobs at its aerospace assembly and test facility in Derby, England.

The cuts represent the first part of a larger plan to cut between 1,500 to 2,000 jobs across Rolls-Royce's businesses worldwide in 2009, the engineering company said in a statement.

Call for loans

European rivals have called for $50bn in soft loans, with General Motors' German unit Opel struggling for survival, but the European commission has said any aid would have to be targeted and temporary.

Kroes said countries would simply export their problems to their neighbours by handing out poorly considered subsidies, and the EU had existing mechanisms that could help big car manufacturers.

"R&D aid or environment aid, for example, would have the double benefit of helping the industry and helping address the problem of climate change," she said.

Cutting emissions from cars is an important part of ambitious EU goals of curbing overall carbon dioxide output by a fifth by 2020.

Kroes said a package of proposals from the European commission next Wednesday aimed at tackling the economic downturn would include measures to help small and medium-sized businesses.

"Small and medium-sized businesses are the lifeblood of our economy, and they clearly need more help... Many of them are failing, not through any fault of their own, and we have to do something more to address that."

Downsizing abroad

The US auto industry has also been hit by the financial crisis. US manufacturers failed in their quest for a quick bailout of the big three - General Motors, Ford Motor and Chrysler - whose losses have risen as Americans cut back on buying cars.

US Democratic congressional leaders demanded executives provide a business survival plan in exchange for their support of up to $25bn in loans.

Meanwhile in Japan, car manufacturers plan further downsizing to cope with the financial crisis, with Toyota cutting 3,000 temporary jobs and Honda reducing its global production, officials said Friday.

Japanese manufacturers have expanded rapidly in recent years to meet brisk demand for their fuel-efficient cars but they have not been immune to the global economic downturn, even if they are in a much better position than their US rivals.

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