VZCZCXRO5175
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHPG #0079/01 0371654
ZNR UUUUU ZZH
R 061654Z FEB 09
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC 1098
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 PRAGUE 000079 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EEB/TPP/MTAA BNAFZIGER AND EUR/CE 
DEPT PLEASE PASS USTR RMALMROSE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD PREL EZ EUN
SUBJECT: CZECHS CONSIDERING MEASURES TO HELP AUTO INDUSTRY; 
WANT EU WIDE FLEET RENEWAL SUBSIDY 
 
REF: A. A) SECSTATE 4753 
     ¶B. B) FEBRUARY 4 PRAGUE DAILY AND PREVIOUS 
     ¶C. C) PRAGUE 59 AND PREVIOUS 
 
(U) This cable is sensitive but unclassified.  Please treat 
accordingly. 
 
¶1. (SBU) Summary. The Czech Republic produced almost a 
million road vehicles in 2008, making it one of the largest 
car manufacturers per capita in the world.  The Czech 
government, however, has yet to introduce any measures to 
assist the car industry during the current economic slow 
down, although a number of possible measures are under 
consideration. The National Economic Council, charged with 
advising the government on its planned recovery program, has 
recommended VAT refunds for business cars and accelerated 
depreciation for business vehicles.  Minister of Economic and 
Trade Martin Riman, supported by the opposition (but opposed 
by others in the Cabinet), is promoting a "fleet renewal" 
subsidy under which consumers would receive up to 30,000 
Crowns (USD 1,500) if they traded in a car older than ten 
years and bought a new model,  Riman has also set up an eight 
member board to advise him on other possible measures to 
support the car industry.  On February 5, Deputy PM Vondra on 
behalf of the Czech EU Presidency, asked the European 
Commission to prepare an immediate proposal "to encourage, in 
a coordinated manner, a European car fleet renewal in the 
area of vehicle recovery and recycling."  There has been no 
reports that any possible Czech programs would be limited to 
locally manufactured vehicles or local content rules would be 
applied.  End summary. 
 
¶2. (U) The Czech economy is dependent on the car industry, 
which, together with suppliers, accounts for roughly 20 
percent of Czech manufacturing. In 2008, the Czech Republic 
manufactured 947,372 road vehicles, making it reportedly the 
second largest car manufacturer per capita in the world. 
Although car production was up 9.5 percent from January to 
September 2008 over the same period in 2007, it was only up 
0.9 percent for the entire year, due to a strong drop in 
external demand in the fourth quarter.  All major car 
manufacturers in the Czech Republic have now cut production 
by as much as 25 percent and have implemented a four day work 
week. Car manufacturers have also laid off many of their 
non-contract workers.  The Automobile Industry Association is 
predicting that over ten percent of the industry's roughly 
130,000 employees will be out of work by the summer.  Over 80 
percent of the cars manufactured in the Czech Republic are 
exported. According to press sources, in 2008, Czechs bought 
203,647 cars, including imports. 
 
¶3. (SBU) The Czech government has yet to implement any 
measures to support the car industry, although some possible 
actions are under consideration.  In early January, PM 
Topolanek created a 10-person National Economic Council to 
advise the government on an economic recovery program (Refs B 
and C).  According to the press, the Council recommended 
against any bailouts for individual sectors and suggested the 
government should focus on ways to promote exports, including 
making more capital available to two state banks which 
provide export guarantees and business loans.  The Council, 
however, also proposed accelerating depreciation for 
computers and business equipment, including cars, and 
possibly refunding the VAT paid by businesses when purchasing 
new vehicles.  The government is expected to present its 
recovery plan later this month. Both PM Topolanek and Finance 
Minister Kalousek have repeatedly stressed the importance of 
fiscal discipline, leading many to expect only modest 
measures. 
 
¶4. (U) The main opposition party, CSSD, has presented its own 
recovery program which includes a car industry proposal to 
implement a fleet renewal initiative. Under the plan, 
consumers would receive a government subsidy of 25,000 CZK 
(roughly USD 1,250) should they scrap their old car and buy a 
new low-emission vehicle.  This week, Industry and Trade 
Minister Riman came out in favor of this idea, proposing a 
subsidy of 30,000 CZK but only if the new car costs less than 
400,000 CZK (USD 20,000).  He admitted, however, that about 
half the cabinet opposed the idea.  Both Finance Minister 
Kalousek and Labor Minister Necas have publicly dismissed the 
program, noting that domestic initiatives will do little to 
help the Czech car industry since the vast majority of 
vehicles manufactured in the Czech Republic are exported. 
Also this week, Riman established an eight-member board, 
independent of the National Economic Council, to advise him 
on ways the state can support the car industry. 
 
PRAGUE 00000079  002 OF 002 
 
 
 
¶5. (U)  On February 4, Deputy PM for European Affairs 
Alexander Vondra told the European Parliament that the Czech 
EU Presidency would "ask the European Commission to come up 
immediately with a proposal on how to encourage, in a 
coordinated, manner, a European car fleet renewal in the area 
of vehicle recovery and recycling."  According to the local 
press, ten EU countries currently have fleet renewal programs 
with subsidies ranging from 234 to 3,400 Euros.  According to 
a Czech EU Presidency press statement (available at 
www.eu2009.cz), DPM Vondra stressed that such schemes can be 
a positive force in stimulating demand but need to be 
"coordinated across the EU so as to prevent market 
distortions and imbalances."  The Czechs would like the 
Commission to present a proposal in time for discussion at 
the March 5-6 EU Competitiveness Council chaired by Minister 
Riman. 
 
¶6. (SBU) We have seen nothing in the press suggesting that 
any of the possible Czech measures would be applied only to 
vehicles manufactured in the Czech Republic or would involve 
local content rules. 
Thompson-Jones