Auto traders warn that Government aid package won't halt job losses

Jan 29 2009 by Jonathan Walker

Car makers have warned that the £2.3 billion package of Government support has failed to address one of the key problems facing the automotive industry, as they predicted more job loses were inevitable.

The Society of Motor Manufacturers and Traders (SMMT) said it had placed help for car finance businesses “right at the top” of the list of concerns it raised with ministers back in November.

But the measure was omitted from a long-awaited announcement by Business Secretary Peter Mandelson this week, who revealed instead that he had asked one of his ministers to continue investigating what action the Government could take.

At a Westminster summit attended by Lord Mandelson and industry leaders such as David Smith, chief executive of Jaguar Land Rover, car makers stressed the importance of giving finance businesses access to credit.

The finance arms of motor manufactuers allow car buyers to spread payment over a number of months. But if they are not able to offer credit, they are forced to turn potential customers away.

The SMMT welcomed the Government’s aid package, which will provide carmakers with loan guarantees allowing them to borrow up to £2.3 billion, including £1.3 billion from the European Investment Bank.

However, SMMT president Joe Greenwell pointed out that discussions about car finance firms had been taking place for months.

He said: “It was a very important element that was right at the top of our list in November.

“We were able to underline the urgency of the situation in terms of trying to stimulate demand and ease credit to customers and dealers.”

Trade Minister Mervyn Davies has been given the task of finding a way to get credit into the hands of finance businesses. One obstacle facing Ministers is that Bank of England regulations prevent it supporting other businesses in the way that it has already supported high street banking chains.

Paul Everitt, the SMMT’s chief executive, said: “The package of measures that has been introduced will unquestionably mitigate the effects of the downturn on the UK automotive industry.

“We are in a recession. Sadly, there will be more redundancies, not just in the automotive industry but across the economy.”

JLR, which operates plants in Birmingham and Solihull, said it hoped to work with the Government to find ways of stimulating consumer demand and providing customers with credit.

David Smith said: “We see long-term benefit in the package that the Government announced, which clearly recognises the strategic importance of the car industry for the future and supports Jaguar Land Rover‘s position as the UK’s largest automotive employer, exporter and driver of research and development.”

The business hoped to “explore a mechanism to support short-time working as an alternative to further loss of the industry’s skills base”, he added.

In practice, this would probably mean using government subsidies to provide training to workers while production lines were stopped.

Prime Minister Gordon Brown repeated his pledge that the Government will do “everything it can” to help the automotive industry.

But opposition MPs criticised the aid package.

Solihull Lib Dem MP Lorely Burt said: “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.”

And Tory Meriden MP Caroline Spelman said: “Whilst some of the measures are welcome, the reality is that this announcement offers very little to fix the urgent problem of credit supplies drying up.”