Good and bad news in Mandelson's motor industry rescue plan

Jan 28 2009 Post Comment

The full implications of Lord Mandelson’s announcement about support for the automotive industry are still sinking in, but they appear to be a mixed bag.

Carmakers such as Jaguar Land Rover have made two major requests from the Government.

The first is to provide access to credit, which banks would make available in normal circumstances.

This is not a bail-out or cash to prop up a failing business. It is a substitute for services offered by the banking sector and used as a matter of course by major manufacturers even when the economy is strong.

It seems that the Government has listened to their concerns and responded with measures to make funds available.

The second concern raised by carmakers is that demand for their products has plummeted, and steps must be taken to revive the market.

While the Government has already attempted to stimulate demand across the economy by cutting VAT, the effects appear to be extremely limited.

What many had hoped for were steps to allow finance businesses run by the manufacturers to access credit, so they can once again provide loans to customers.

Another option which has been floated would be to introduce a scrappage scheme, in which motorists could turn in older, less fuel-efficient models in return for a discount on new, greener cars.

Neither of these proposals has been taken up. Instead, we have a review, to be conducted by trade minister Mervyn Davies, to look at the options.

Another review is the last thing the automotive industry needs. Carmakers require real action, now.

But if the government’s announcement did not contain everything, that is no reason to overlook the positive steps it did include.

Ministers must now ensure the loan guarantees they have promised really do become available, as quickly as possible.

It seems that firms will need to apply to be included in the scheme, and satisfy the Government that they meet certain criteria, including demonstrating a commitment to green technology.

If that is the case, this must not be allowed to become a slow and bureaucratic process.

There are also questions about whether the £2.3 billion sum available, substantial as it is, will be enough.

But Lord Mandelson’s announcement should not be seen as the end of the government’s involvement.

Further steps may be required in the months to come.

That doesn’t prevent it being a good first start, if the details stand up to scrutiny once they are revealed in full.