Motor industry rescue package fails to kick-start demand for cars

Jan 28 2009 by Jonathan Walker

Carmakers were ordered to go green if they want to survive, as the Government announced a £2.3 billion loans package to save Britain’s battered automotive industry.

But Ministers came under fire for failing to include measures to boost demand for cars, while Midland manufacturer Jaguar Land Rover warned the market for new vehicles had “evaporated”.

Instead, Business Secretary Peter Mandelson announced that taxpayers would guarantee loans of up to £1.3 billion from the European Investment Bank, and £1 billion from other lenders.

Carmakers must prove they are developing environmentally-friendly technology “to green Britain’s economic recovery” in order to qualify, Lord Mandelson said.

He added: “The automotive industry knows that it must change to succeed in this new world. It has to be cleaner and greener”.

The long-awaited announcement, which met with mixed responses from business leaders in the West Midlands, went some way to meeting one of the key requests made by carmakers in November, when they met Ministers to warn that the banking crisis had cut off the supply of credit they need to stay in business.

But their second request was for measures to stimulate demand for cars, such as loans for manufacturers’ finance arms, which allow people to buy vehicles by providing them with credit.

Following the announcement, Jaguar Land Rover, which employs thousands of West Midlands workers, pointedly highlighted the need to tackle both problems.

A spokesman said: “The specific nature of the challenge we face is that credit has dried up at the same time as demand evaporated, but it is absolutely critical for the future competitiveness of this country that we have a strong and highly-skilled engineering and manufacturing workforce in place to drive green technology innovation.”

The company, which employs 16,000 people in Birmingham, Solihull and Merseyside, will join other carmakers in a meeting with Lord Mandelson in Westminster today , to discuss details of the package and learn exactly what they have to do to be eligible.

The Government’s insistence on promoting environmentally-friendly technology may help the business access cash, as it is one of the few major manufacturers still to conduct research and development in the UK. Facilities at Whitley, in Coventry, and Gaydon, in Warwickshire have focused on green technology in recent years.

But Conservatives warned that the Government’s package of £2.3 billion in total might not be enough, as firms like Nissan, which recently axed 1,200 jobs at its plant in Sunderland, also want support.

Although JLR has never confirmed details of the aid package it requested, it is believed to have asked Ministers for loans or loan guarantees of up to £1 billion, while other carmakers may need similar sums.

Birmingham MP Andrew Mitchell (Con Sutton Coldfield) said: “We welcome the announcement, but we were calling for loan guarantees back in November. It is really too little too late.”

And Peter Luff (Con Mid Worcestershire), Chairman of the Commons Business and Enterprise Committee, demanded: “When will the car financing companies’ access to finance be improved?”

Ministers have not ruled out support for finance arms, and Trade Minister Mervyn Davies has been asked to conduct a review.

But Business Minister Ian Pearson, MP for Dudley South, warned that demand for new cars in the current economic climate would be poor - whether cheap loans were available or not.

He said: “We need people to have confidence in the their future prospects so that they want to buy cars in the future.”

A number of MPs, including Birmingham MP Richard Burden (Lab Northfield), warned Ministers that they must act quickly to get funding to carmakers and ensure the process is not delayed by bureaucracy.

Mr Burden said: This is a good step forward. It won’t solve all the industry’s problems and further Government support may be needed in the months to come.”

Solihull MP Lorely Burt (Lib Dem Solihull) warned: “The package has come very late, causing unnecessary worry for hundreds of thousands of employees. Some of the £2.3 billion available was already announced and is not new.”

In the West Midlands, Peter O’Grady of the EEF welcomed the package while Lord Bhattacharyya, head of the Warwick Manufacturing Group, said it was unlikely to solve JLR’s short term problems