Car industry no lame duck, insists Lord Mandelson

There's been a muted reception to Lord Mandelson's £2.3bn aid package for Britain's battered car industry...

Last Updated: 06 Nov 2012

The Government is providing some roadside assistance to the UK’s broken-down motor industry with a £2.3bn support package, Business Secretary Lord Mandelson said on Tuesday. The money will mostly be used to guarantee loans made to manufacturers or big suppliers, in the hope that they might be able to start selling some cars again, and to fund research into eco-friendly vehicles. But do consumers really want to be spending their hard-earned savings on a new set of wheels at the moment? And is this just too little cash to make any difference?

The aid package – which we mustn’t call a bailout, or Mandy will get upset – is in two parts. The first involves state guarantees to unlock £1.3bn of European Investment Bank loans (the money put aside to lend to UK companies last year), intended to make financing easier. But it’s also putting aside £1bn in direct loans to help manufacturers build more environmentally-friendly cars. Mandelson insisted that the car industry was ‘not a lame duck’; but that it needed to reinvent itself ‘for a low-carbon future’ (he’s also making an extra £35m available for staff retraining).

The Government reckons the case for intervention is clear. We may not own many of our car-makers any more, but the industry directly or indirectly employs about 1m people in the UK. Mandelson says it contributes about £10bn in ‘added value’ to the economy – while it’s also disproportionately important to Britain’s manufacturing prowess and the health of certain regional economies. And it’s certainly had a rotten few months: both sales and production have halved in recent months as the deteriorating economic climate has hammered demand, putting thousands of jobs at risk.

However, some reckon that the Government is barking up the wrong tree by making it easier for us to pay for new cars – they argue that it’s trying to supply a non-existent demand, since most people just won’t want to shell out on big-ticket items at the moment. Nor has the green lobby been appeased by the funding for extra research into eco-friendly vehicles – a far greener option, they point out, would be to forget building cars and invest the money in public transport instead.

The other worry is that this package just won’t be enough. It’s certainly pretty small in comparison to the aid that other countries are giving their carmakers (or the huge sums that the Treasury has pumped into the financial system) - while those EIB loans could take months to materialise. Equally, most of the money will probably be hoovered up by big groups like Vauxhall and Jaguar Land Rover, which could leave the smaller part-makers out in the cold (GKN said today that it had cut 2,800 jobs since October, including about 250 in the UK).

Still, an industry with 1m employees accounts for a lot of voters – and probably a lot of unionised Labour voters at that. So there was never really any doubt that the Government would do something. But it remains to be seen whether this will prove to be anything more than a green-figleaved political sop...

In today's bulletin:

BSkyB gets 171,000 extra customers for Christmas
Philip Yea quits as 3i portfolio loses £864m
Asda provides ray of cheer with 7,000 new jobs
Car industry no lame duck, insists Lord Mandelson
Rich cool their jets at Davos

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