David Bailey: Lessons must be learned over auto industry funding mess
Professor David Bailey casts his eye over the critical report into Government support for Britain’s car industry.
Today’s report by the Business and Enterprise Select Committee is hard-hitting in its criticisms of the Government in its support – or lack thereof – to Britain’s auto industry.
The report is carefully balanced. On the one hand it is optimistic in noting that Britain’s car industry is world class, flexible, productive, and globally competitive and has huge strengths in the premium brand sector. It also has a diverse supply chain.
On the other hand it highlights the severe pressures that the industry is now under and warns of the danger of suppliers going under, of losing research and development, of employment cuts, and knock-on effects elsewhere in the economy.
In particular, the government is pressed to show greater urgency to help the industry, as the industry’s long term future is seen as depending on taking the right actions now. This means support for individual firms like Jaguar Land Rover but also the industry as a whole, the committee notes.
The Select Committee, a cross party grouping of MPs, criticised ministers for holding out the possibility of support but not actually delivering it. In particular, the Committee expressed concern about the lack of coherence to government policy and highlighted a series of “shortcomings” in the automotive support package unveiled back in January.
Noting that “not one single penny” has yet been advanced through that auto support package six months on, MPs said that they were astounded it had taken so long to arrange funding for Jaguar Land Rover for its future investment in new technologies.
They are right. The auto support package was meant to provide support for long-term investment in R&D, not to be a long-term application process in its own right. Europe has already backed JLR through the European Investment Bank (EIB). All the government needs to do is sort out a loan guarantee. Quite why this has taken six months is beyond me as well.
MPs also called for the auto support package to be made more flexible, with the threshold for applications to be dropped from £5 million to £1 million so that more supply chain companies can access the scheme. This is a sensible recommendation and the government would be wise to put this into action quickly.
The committee also criticised the government for its approach on auto finance. Here again the government was criticised for holding out the possibility of support but failing to deliver. Again this is correct. Such support has actually been forthcoming in the US, France and Japan; is the UK government going to help here or not?
MPs also compared the levels of funding available in the UK with other countries, such as Germany and France, noting that much higher levels of support were available elsewhere. They highlight that this brings a risk that valuable skills and capacity could be lost to countries that are more ready to support the industry. Again, correct.
Overall, the report rightly calls for a more urgent and coherent strategy that makes sure that policies on tax, the environment and support measures don’t conflict with each other unnecessarily.
The MPs give credit where it is due. They note that the scrappage scheme was introduced quite late on but point out that there were “encouraging signs” that it was effective. On this at least the government deserves praise.
MPs on the committee have done a considerable public service by producing such a timely, detailed and hard-hitting report. Not of it should come as a surprise to Birmingham Post readers as this newspaper has plugged away on the need for a sensible and timely support package for JLR and the auto industry for months.
Back in January the Birmingham Post and the Birmingham Mail held an auto summit in Birmingham which brought together key players in the industry. It spelled out ten key actions that were needed to support the British auto industry.
Of these, only the scrappage scheme has been introduced effectively in the UK, unlike other countries where measures have included support for the finance arms of car firms, support for exports, and part-time wage subsidies to protect jobs and skills.
What’s at risk here is that a hugely successful industry which exports most of what it produces could be permanently damaged because of a failure by the government to act decisively to help it through a double whammy of credit crunch and recession.
Two days ago JLR announced that X-type production was to be ended at the end of this year with another 300 voluntary redundancies at its Halewood plant, bringing total job losses at JLR to around 2200 over the last year.
Hopefully a new lightweight Range Rover, the LRX, will replace the X-type at Halewood but a decision on that has yet to be made, and progress depends critically on the British government providing a loan guarantee to access a European investment bank loan.
David Smith, JLR’s Chief Exec, said this week that the firm continues “to actively seek a government guarantee to secure this (EIB) loan and resolution to these talks will be a key factor in our investment decision in this new product for Halewood”.
He went on to note that despite considerable investment in JLR, parent company Tata could not alone “address the fact that the entire car industry is in distress due to a lack of credit and the collapse in the market. Government support in the form of the Automotive Assistance Programme loan guarantees announced in January has still not been forthcoming”.
“Further actions will be determined by the state of the market and the speed with which the already-approved €340 million European Investment Bank loan can be drawn”.
The government needs to get its finger out and get the loan guarantee sorted sooner rather than later.
Overall, the British government has been slow off the mark and what support there has been is limited compared to other countries. We have now seen over 30,000 job losses in the UK auto industry and a more supportive stance towards the industry and manufacturing more generally is needed.
Increasingly I am left feeling that the Labour government has made a fundamental error in its economic policy over the last twelve years by only really having a strategy for the financial sector, and by allowing growth to be driven through a consumer debt-fuelled spending binge. We were supposed to have ended boom and bust (to quote Gordon Brown).
Wrong. It was one big boom and one big bust. In the future we need to spend less and make more, and that requires having an industrial policy that supports modern, knowledge intensive manufacturing, including the auto sector.
* Professor David Bailey works at Coventry University Business School and blogs regularly for the Birmingham Post.