Press Report : UK offers loan guarantees for carmakers

John Willman, Business Editor, Financial Times, 27th January, 2009

Peter Mandelson, Business Secretary, has unveiled a package of measures to help Britain’s embattled car industry, by offering financial support for the development of low carbon vehicles with new loan guarantees.

The announcement outlined a new guarantee scheme to back £1.3bn of loans from the European Investment Bank, with another £1bn of loans that would not be eligible for such funding.

The package included measures to support training schemes for car workers, help for car parts suppliers and grants for ”green” research and development. However, there was no new support offered for the financing arms of the car manufacturers, for whom the supply of credit used to purchase most cars has dried up.

Lord Mandelson said that Mervyn Davies, the former banker who has just joined the government as Trade and Investment Minister, would be drawing up a plan to improve access to finance.

“This is not a bail out,” he added, saying that the UK industry had been transformed in recent years and that its productivity was higher than France or Sweden’s. “There is no blank cheque on offer, no operating subsidies. It will provide a significant boost to automotive companies, workers and suppliers with a significant boost and accelerate the pace of change in producing green, low carbon vehicles.”

Mr Mandelson offered an increase in the training budget for the industry from £65m to £100m, which he said would help smaller businesses in the automotive supply chain. But this fell short of demands from some manufacturers for the sort of scheme used in continental Europe to support retraining of workers who would otherwise be laid off and require unemployment benefits.

There is no blank cheque on offer, no operating subsidies. It will provide a significant boost to automotive companies, workers and suppliers with a significant boost and accelerate the pace of change in producing green, low carbon vehicles

The Society of Motor Manufacturers and Traders, which will meet Lord Mandelson on Wednesday, warned last week that it was ”battling” for its survival. Paul Everitt, its Chief Executive, said Lord Mandelson’s package was an important announcement that recognised the strategic contribution of the motor industry and followed action in other EU member states, the US and Japan.

“The UK motor industry is productive and globally competitive with a long-term future at the heart of the low carbon agenda. We look forward to discussing the substance of the announcement at our meeting with Lord Mandelson tomorrow.”

Steve Radley, Chief Economist of the EEF manufacturers’ group, said: ”This is a long awaited and welcome package which recognises the unique circumstances affecting one of the key sectors of manufacturing. It will also provide a degree of certainty for their important supply networks which are also integral to other manufacturing sectors.

“The next step has to include short term measures to help companies hold on to workers. While addition funding for training will help secure the skills manufacturing will need for the eventual recovery, this should be linked to more flexible support for companies implementing short time working to tide them through this difficult period.”

Tony Woodley, Joint General Secretary of the Unite trade union, said: “Today’s statement will come as a massive disappointment to the tens of thousands of workers employed in or dependent on this vital industry. Two billion pounds sounds like a lot of money, but at least half of this will be taken up by Vauxhall and Jaguar Land Rover alone, leaving little or nothing for the hundreds of component companies.

“This is a fraction of the support being given by almost every other government in Europe. Ministers need to more than double the money available, and do so immediately. Make no mistake, we will be continuing to fight for more assistance from government for this industry.”

[Source: Financial Times]

[Editor’s Note: Readers should note that an updated version of this article can now be found at the above link.]

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  1. Jonathan Carling Jonathan Carling says:

    I think this is a helpful and sensible package. No donation – just a loan through a difficult period, and tied to capital investment in new green technologies. Probably helps to keep certain makers in the UK too. I await with interest the arrival of environmentally friendly cars built in the UK – and with a degree of scepticism.

  2. Mark Pitchford says:

    I’m almost annoyed at this. Why JLR and not Rover? What happened to the EU’s “anti competition” stance?

  3. Richard Wilton says:

    @Mark Pitchford MG Rover folded when the car market was very healthy. Not the same thing as tiding firms over a period when credit has stopped.

  4. Ian Elliott says:

    It may have been forgotten that MG Rover, from 2000 to 2005 operated in a credit-free situation – there was zero support for them from banks during that time. Oh yes, they had the famed £500M from BMW, but that was only the equivalent of 3 months turnover. In effect, MG Rover always had to contend with the same conditions that are now hitting JLR. Having said that, maybe it was a good thing that closure came in 2005, when it was relatively easy for employees and suppliers to cope. If MG Rover had expired in late 2008, it would have been really messy!

  5. Jonathan Carling Jonathan Carling says:

    And by 2008 there’d have been no Rover buyers left anyway!

  6. Richard says:

    is that your attempt at humour JC?… don’t give up the day job.

  7. Graham Ariss says:

    I think that this is the wrong approach; I would suggest an alternative of the Government offering to underwrite the banks for loses on Retail Car Finance in proportion for the % of UK content for cars and trucks sold in the UK market. So a car with 75% content will mean that the banks can recover 75% of the loss from the Government should the business turn bad. As the rate of finance offer is now essentially a function of the risk of the loan, this would give a competitive edge in the market to products with high UK Content.

    Of course this would break the EU rules, but essentially these have all but been abandoned in the current crisis. The reference to the Swedish and French in the announcement is a swipe at the extensive loans their governments have given their motor industries.

  8. alan says:

    i can understand the government helping industry,but why jaguar /land rover.people cannot and will not buy the cars at the prices they are marketed for. 4×4 is now a dead duck and if the money is to help jaguar to produce green cars then what price will these new cars be .there should be a commitment by jaguar /land rover to produce a small and medium car of which the vast population of the uk and the euro market can afford. i worked at rover for 31 years and at this moment in time it looks to me that the inevitable is about to happen like mg rover other readers will say it is not the same and i hope im wrong but the writings on the wall.

  9. glyn s says:

    the french italians have strong car makers,.we should do as they do give money to local car makers,.But make them pay back over the next 120 years.

  10. glyn s says:

    why not down size some moters. range rover 2and 3/4 tone,s why not do a susuki jimmi type ,1 ton ish.

  11. sammo says:

    ihave to say i am very impressed with the new mgtf le 500,the chinese owners seem to be very enthusiastic about the product.does anyone have an idea of whats next on the agenda it all seems to have gone a bit quiet.

  12. Mark Pitchford says:

    @Jonathan Carling Well, there would have been at least one. I’ve had dozens of Rover products over the years and have always been happy. Presently I have a Mondeo which lacks the character and (more surprisingly) reliability of any Rover/Austin/MG I have owned. I had hoped that the Chinese would have their act in order for November this year when I look to replace it, but that looks increasingly unlikely.

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