Mandelson dithers as British car industry drives off into the sunset

LONDON BRIEFING: BUSINESS SECRETARY Lord Mandelson should not expect a particularly warm welcome when he meets representatives…

LONDON BRIEFING:BUSINESS SECRETARY Lord Mandelson should not expect a particularly warm welcome when he meets representatives of the ailing car manufacturing industry in London today, writes FIONA WALSH.

His eagerly awaited support package for the sector, unveiled in the House of Lords yesterday afternoon, fell well short of expectations and will do little to halt the alarming decline of an industry that has already axed thousands of jobs across the country and thrown thousands more on to short-time working.

The headline figure of £2 billion-plus is only a fraction of the aid the industry has been calling for.

But even a cursory glance at the announcement from the Department for Business, Enterprise and Regulatory Reform reveals that the real figure is smaller still – much, much smaller.

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In fact, of the £2.3 billion loan guarantees promised by Mandelson, £1.3 billion will be obtained by “unlocking” the financing made available to UK companies last year by the European Investment Bank. The EIB guarantees are for investment in green initiatives and will do nothing for manufacturers struggling to drum up custom and pay wages in the short term.

The cash will be assigned on a case-by-case basis and, even once the guarantees are approved, will take weeks or months to come through.

A further £1 billion will be backed by the UK Treasury – but this is part of the package of support announced by Alistair Darling in his pre-budget report last year and is also aimed at lower carbon initiatives for non-EIB-backed projects.

There is also a commitment to increase funds for training from their current £65 million to £100 million – if there is demand from the industry, the business secretary said. Funding for training is always welcome but yesterday’s package of half-hearted measures raises the serious question of how much longer there’ll be an automotive industry in which to train anyone.

What the carmakers – and all the component suppliers who are suffering alongside them – really wanted from the government was something that would kick-start demand, such as improved access to credit for their finance arms. This would enable the manufacturers to offer loans to customers who want to buy a car but cannot get the finance, and might go some way to clearing the huge stocks of cars that are piling up in ports and manufacturing plants around the country.

On that subject the noble lord had little to say, other than he has tasked the new trade and investment minister Mervyn Davies (late of Standard Chartered Bank) to draw up a plan for improving access to finance. No timescale was mentioned. Almost one million people are employed by the automotive industry in the UK and the sector has been in the frontline of the recession, Mandelson said, with its output falling faster and further than any other sector since the summer.

Last week, industry figures underlined the scale of the slump, showing that car production had collapsed by almost 50 per cent in December. Commercial vehicle production was even harder hit, crashing by 57 per cent.

Thousands of jobs have already been lost and the pain is feeding back through the supply chain. Unions fear thousands more jobs will be lost. Predictably, the unions were furious and made it clear they will continue to fight for further support. Tony Woodley, joint general secretary of the Unite union, called for some “creative” action, such as reduced hours for car workers, with pay made up by the state. Support for the manufacturers’ credit arms is vital if the plants are to keep producing, he said, warning that by the time the cash comes from Europe, there could be little of the industry left.

John Thurso, Liberal Democrat business secretary, said the core of the announcement was a “repackaging” of European investment bank loans and guarantees, and there was also a lukewarm response from the employers’ organisation, the Confederation of British Industry.

CBI director-general Richard Lambert said that until the industry can get access to credit, it will continue to scale back production and axe jobs.

It was not clear, he added, how many hoops carmakers might need to jump through before they become eligible for the funds.

In his announcement yesterday, Mandelson stressed that the measures for the carmakers were neither a bailout nor a blank cheque. What Britain needs now, he said, is an economy with “less financial engineering and more real engineering”. But what the British government really needs, according to disappointed motor industry executives last night, is a business minister who’s in the real world.

  • Fiona Walsh writes for the Guardiannewspaper in London