VOLKSWAGEN BECAME the first German carmaker to seek to tap the country's €500 billion government-backed banking rescue plan yesterday, highlighting the global spread of the the auto industry's woes.

Europe's largest carmaker said its affiliates, Volkswagen Bank and Volkswagen Financial Services, had applied for state guarantees that would cover loans for refinancing.

Until recently VW had shown more resilience than its rivals as consumers turned to smaller and more fuel-efficient cars. The group refused to comment on details of yesterday's application.

Bernd Osterloh, head of VW's works council, said yesterday the company would miss its growth targets for the coming two years.

At a staff meeting, Horst Neumann, a member of VW's executive board, said it would halt production at its German plants at Christmas for several days longer than planned as demand for its cars had fallen in recent weeks.

Carmakers worldwide have been hit hard by a sudden slump in demand and many have turned to their governments for aid. All of them face spiralling refinancing costs. BMW and Daimler recently issued bonds with spreads of more than 500 basis points above the rate banks pay for lending to each other.

Volkswagen covers 30 to 40 per cent of its refinancing needs by issuing bonds. With a guarantee from the bailout scheme, which would cost the company about 100 basis points, it could benefit from more affordable refinancing rates when it issues bonds.

German premium carmakers BMW and Daimler said they had not applied to the government rescue scheme, but both hinted they would consider this as an option.

The finance arms of carmakers are, in principle, eligible for the state-backed rescue scheme as long as they have a full banking licence in Germany. - ( Financial Timesservice)