Press Report : Treasury sets ‘tough’ car bail-out terms

Jean Eaglesham, Chief Political Correspondent, Financial Times, 18th December, 2008

A provisional rescue package being drawn up for Britain’s beleaguered car manufacturers will have “very tough” conditions attached, in part to avoid setting too generous a precedent for other bail-outs, according to government insiders.

The Treasury wants to ensure any taxpayer loans or credit guarantees offered to the motor companies are on terms at least as demanding as those a commercial lender would require. The Financial Times understands this could include taking shares as collateral, raising the prospect of a taxpayer stake in a manufacturer that defaulted on repayment. Ministers are resisting pressure for a US-style cash bail-out of the sector, despite warnings of tens of thousands of impending job losses.

The government is dealing with requests for bridging loans and guarantees to support manufacturers’ financing arms on a company-by-company basis. Manufacturers that have held individual talks with Peter Mandelson, the Business Secretary, include Jaguar Land Rover and Vauxhall.

Alistair Darling and Lord Mandelson are determined the government should be the lender of last resort, with aid made available only when all other options have been exhausted. Ministers are understood to be adamant that any taxpayer support is targeted at the UK, rather than supporting the overseas parent.

Negotiations about potential state aid – which would have to be cleared by Brussels – began in earnest at an industry summit with Lord Mandelson three weeks ago. The CBI employers’ body yesterday added its voice to the sector’s warnings of the need for imminent help.

“Where necessary, government itself should provide interim credit, capital and liquidity directly to offset the shortage in the private sector,” said Richard Lambert, CBI Director-General. “The urgent needs of the automotive sector for targeted bridging finance aimed at its distribution network are a case in point.”

Lord Mandelson is to consider measures to support manufacturers after the recession, as well as immediate support. The Business Secretary last night set out in more detail his plans for a new “industrial activism”. A state-backed innovation fund could be one of the first fruits, Lord Mandelson suggested in a speech in London. “We need to ask if there are other ways in which the government could work closely with the private sector to encourage risk capital. Some for example have suggested that we now need a 21st century version of . . . 3i.”

Lord Mandelson suggested Britain could learn from continental Europe – notably France and Germany – in shaping a more coherent policy with “specific industrial objectives”, as well as general business needs. He cited concern the “government still struggles to speak with a single voice” about important decisions affecting a sector or company.

As well as ensuring a co-ordinated approach of different departments and agencies, the government should intervene to support important areas – research, innovation, skills and infrastructure – that “the market will not automatically deliver on its own”. He ruled out a return to a 1970s-style policy by which government picked winners “or, rather, where losers picked the government”. But a strategy was needed to reflect the radical impact the recession will have on the economy’s structure “long after growth has resumed”.

[Source: Financial Times]

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