Page last updated at 17:13 GMT, Tuesday, 27 January 2009

Q&A: UK car industry support

Jaguar emblem
Jaguar Land Rover employs 2,500 UK workers in research

Business Secretary Lord Mandelson has outlined a package of government support for the UK car industry in a statement to the House of Lords.

Ministers have faced calls to bail out carmakers whose sales have slumped as consumer credit has dried up.

Lord Mandelson's package includes a scheme to guarantee loans for car manufacturers.


What are the key elements of the package?

The government's plan has two aims: not just to keep the wheels of the car industry turning at a time of economic crisis, but also to direct carmakers towards producing more environment-friendly vehicles.

Lord Mandelson said he wanted to promote a "step change" in research and development programmes into cleaner engines, lighter cars and "plug-in hybrids".

In all, the measures to support the car industry include guarantees to unlock loans of up to £1.3bn from the European Investment Bank, as well as a further £1bn in UK government loans, to fund investment in greener vehicles.

The Department of Innovation, Universities and Skills has also said it is prepared to increase funding to help train carmakers' employees from £65m to £100m.

The package needs approval from the European Commission before it can take effect, but the government says it is consistent with the commission's policy on temporary state aid.

And if manufacturers want improved access to finance for any other, non-environmental purpose, they will have to wait for a further government plan, which will be drawn up by new Trade and Investment Minister Mervyn Davies.

Why is this package needed?

Carmakers worldwide have been suffering from a slump in demand for their products because of the global financial crisis.

CUTTING BACK

Aston Martin: Extended Christmas shutdown and 600 redundancies
Bentley: Worked a three-day week in October and longer Christmas break. Closing Crewe plant for seven weeks from the beginning of March
GM (Vauxhall): Extended Christmas closure and 40-day shutdown
Honda: Four-month shutdown between February and May
Jaguar Land Rover: Series of one-day shutdowns and production cuts late 2008 plus 450 redundancies planned
Mini: Christmas shutdown extended by 10 days. 300 agency staff let go and one week shutdown planned for February and two weeks in August
Nissan: Two-week shutdown late last year and 1,200 redundancies
Toyota: One of the night shifts suspended
Source: SMMT

In the UK, Jaguar Land Rover, which has about 15,000 British employees, said in November that it was facing "unprecedented trading conditions".

The firm is now owned by India's Tata group, but is seen by some as a "special case" because it conducts almost all its research in Britain - employing 2,500 of its UK workforce in that field.

In all, more than 800,000 UK jobs are reliant on carmaking, which makes up a significant proportion of what is left of the country's manufacturing sector.

Other car manufacturers facing difficulties in the UK include BMW, Honda UK and GM's Vauxhall.

According to the Society of Motor Manufacturers and Traders (SMMT), the number of new cars produced in the UK in December 2008 fell dramatically.

December production was 47.5% lower than in the same period in 2007, as plants were shut down for extended holidays over Christmas.

Will it work?

Opinion is divided. Many influential voices have called for the UK's car industry to be given the same assistance as struggling US auto firms GM and Chrysler, which have received a government bail-out.

This view is held particularly strongly by the unions, and in the West Midlands, where much of British car production is concentrated.

Others argue that the main problem is the lack of customers, not the lack of car production.

"There is little point in giving money to motor manufacturers so they can send the workers back to build more cars that are going to stand on fields because people don't want them," says Professor Kevin Morley of Warwick Business School, who is a former managing director of Rover.

Other countries have taken a different approach. Germany, for instance, has offered incentives to consumers in an effort to encourage them to trade in their old cars.

Any German who scraps a car at least nine years old and replaces it with a new or almost new one will receive 2,500 euros (£2,360; $3,300) towards the cost of the changeover.

As a result, car dealerships have reported a surge in interest and are forecasting 200,000 extra sales.



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