Page last updated at 17:42 GMT, Tuesday, 27 January 2009

Car firms get 2.3bn loan package

Lord Mandelson: 'This industry is not a lame duck and this is no bail-out'

Business Secretary Lord Mandelson has outlined a package of government support for the UK car industry potentially worth up to 2.3bn.

The package includes a scheme to unlock 1.3bn of loans from Europe for car manufacturers and major suppliers.

He said the government would also guarantee up to 1bn of further loans.

But shadow business secretary Ken Clarke said the European loans were announced last year and called the whole package "pretty small beer".

Outlining the measures in the House of Lords, Lord Mandelson said the automotive industry was vital to British manufacturing and at the heart of many regional economies but was "in the frontline of the downturn".

'Low carbon future'

He said the measures would boost the industry and lay "the foundations of its reinvention for a low carbon future".

They include guarantees to unlock loans of up to 1.3bn from the European Investment Bank and another 1bn in loans to fund investment in green-friendly vehicles.

This industry is not a lame duck and this is no bail out
Lord Mandelson

But he said there would be "no blank cheque" and any schemes supported had to provide jobs, develop new technology and processes for the long term and provide value for money.

Regional development agencies and the Technology Strategy Board are to be invited to bring forward new research and development programmes into cleaner engines, lighter cars and "plug-in hybrids".

He also said spending on skills training for employees would be boosted to 100m from its current 65m, if there was demand from the industry.

And trade and investment minister Mervyn Davies had been asked to draw up plans to improve access to additional funding for car companies' financing arms.

The car industry had to change to succeed in the "new world" and had to be cleaner and greener, Lord Mandelson said.

"This industry is not a lame duck and this is no bail out," he added.

Clarke responds to Mandelson plan

Responding in the Commons, shadow business secretary Ken Clarke said the package seemed to be "pretty small beer" compared with stories that had appeared over the weekend.

"I'm slightly disappointed. I thought the secretary of state who I am shadowing would produce some new ideas, some dynamite," he said.

"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."


The government was "behind the curve" on helping the car industry which he said, as far back as October, ministers had said they stood "ready to help" while the Tories had suggested loan guarantees for the finance arms of car companies in November.

"Here we are months later and during that time sales of cars in this country have dropped by half whilst the government dithers," he told MPs.

And he said on the "key subject" of getting people who could afford it credit to buy cars - the government had only said it was "looking at steps" to address it.

The specific nature of the challenge we face is that credit has dried up at the same time as demand evaporated
David Smith
Jaguar Land Rover

"For the rest of the statement I think the car industry will have listened in vain," he said.

John Thurso, for the Liberal Democrats, said he had "grave concerns" about whether the package would work and said much had been announced already.

"There are a number of worthy crumbs of comfort for the automotive industry but as it has been announced today, it is neither strategic nor comprehensive nor the panacea it was trailed to be," he said.

Unite general secretary Derek Simpson told the BBC he was pleased the government had made a start in helping the car industry but questioned whether the loans would be enough.

"In the case of the car industry I suspect much more needs to be done," he said.

Jaguar Land Rover and the Society of Motor Manufacturers and Traders welcomed the announcement which they said recognised the strategic importance of the car industry to the British economy but said they would go through the detail with Lord Mandelson on Wednesday.

And Stephen Sklaroff, of the Finance and Leasing Association - which represents the motor finance sector, said he looked forward "to early discussions with Mervyn Davies on how best to support all types of lenders to free up credit for new and used cars".

Friends of the Earth welcomed the announcement but said more needed to be done to make sure the car industry was building cars that used less fuel - and providing incentives for people to buy them.

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