Mandelson industry rescue package 'just not enough'

Jan 28 2009 by William Green, The Journal

BUSINESS and union leaders last night warned the Government’s long-awaited support package to the beleaguered car industry failed to go far enough and risked further job losses.

Business Secretary Lord Mandelson announced a £2.3bn package of loans and guarantees for the “reinvention” of the British motor industry as a producer of greener vehicles amid speculation the Treasury torpedoed a bigger scheme over fears about the impact on already under-pressure public finances.

Lord Mandelson insisted it was not a bail-out, but would boost the industry which has been hard hit by a sales slump, with Nissan cutting 1,200 jobs at its car plant in Washington with more workers axed in the supply chain.

“This industry is not a lame duck and I am not proposing a bail-out. It has been transformed over the past decade. Productivity has risen, catching up and overtaking both France and Sweden,” said Lord Mandelson.

“In Britain, we have some of the world’s most productive car plants. For the future, Britain needs an economy with less financial engineering and more real engineering. The car industry can and should be a vibrant part of that future,” said Lord Mandelson.

But he came under fire after failing to offer any measures to immediately improve access to credit for the finance arms of automotive companies, which could have boosted the market by increasing the availability of car loans.

New Trade and Investment Minister Mervyn Davies – a former banker – has instead been tasked to draw up a plan to deal with the issue, said Lord Mandelson who now faces a crunch meeting with industry chiefs today.

Regional CBI director Sarah Green said: “The UK’s automotive sector is among the most efficient in the world, a major employer and a critical part of our manufacturing base, but it has been crippled by a lack of credit at a time of a very steep reduction in demand.

“This announcement is a positive first step but it is unclear how quickly any new funding will be made available or how many hoops car-makers might need to jump through to become eligible.

“The industry relies on credit to complete customer purchases. Without access to that, car-makers will continue to scale back production and cut jobs.”

Unite joint leader Tony Woodley said the Government was only providing a fraction of support in comparison to its European counterparts – and urged it to double the amount allocated to help the industry over face thousands of skilled worked being axed.

Shadow Business Secretary Kenneth Clarke described the measures as “pretty small beer”, while the Liberal Democrats said they contained “worthy crumbs of comfort”.

Speaking in the Commons, Wearside MP Fraser Kemp said Nissan workers were facing the consequences of a very dramatic downturn and urged the Government to come forward with proposals on car financing with “upmost speed”.

The Labour MP also urged ministers to work with other European Governments to ensure a co-ordinated response to help the car industry.

“In my constituency, 76% of the cars produced are exported to Europe and the rest of the world. It is absolutely essential that we have European and wider global co-ordination to help the car industry.”

Business Minister Ian Pearson said he wanted to make progress in terms of the financing arms of car companies and stressed the need for concerted European action to support the industry.

Nissan welcomed the announcement to increase credit availability, remove constraints on customers, dealers and suppliers, as well as measures to encourage development of “green” technology and funding for staff training.

“We are also encouraged by the specific instruction to Mervyn Davies to draw up plans to improve the access to finance for the financial arms of vehicles manufacturers,” it said last night.

“We look forward to discussing this, as well as other measures to stimulate the market, with the Secretary of State during an industry meeting scheduled for tomorrow.”

A spokesman for leading Benfield, the major North East car dealer, said: “Providing access to credit is key. Whilst not a bail-out, today’s decision will go some way to stimulating car growth in the UK and North East.”

Development agency One North East welcomed news that it will play a key role in pushing forward the development of “green” car technology.

But Mr Clarke, who returned to the Tory front bench this month, said he had expected some “dynamite” proposals.

“Is it the case that the Secretary of State has not produced a bail-out because the Treasury has finally won an argument inside the Government and explained to him that they can’t afford the kind of support for the industry that was being trailed,” he said.

The package is subject to European approval and as such has no start date, although Lord Mandelson expressed hope it could be obtained quickly.

The package

:: Loans or loan guarantees to support up to £1bn of lending for lower carbon initiatives for non-EIB backed projects

:: Loans expected to be repaid within two years

:: Funding for new worker training could be boosted to £100m from £65m, if there is demand

:: Plan to be drafted for improving access to finance for manufacturers’ finance arms

:: Scheme applies to projects over £5m from UK-based vehicle manufacturers and automotive parts suppliers with turnover of £25m or more

:: £50m education investment to provide new opportunities for automotive firms looking to tap into academic expertise