labels: World economy
UK Business Secretary, Mandelson to unveil loan package for car industry news
27 January 2009

The UK Business Secretary, Peter Mandelson will meet UK car makers for the second time on Wednesday to find ways to help the car industry cope with the economic downturn, which has strangled credit from banks and other financial institutions leading to plummeting vehicle sales and job losses.

The British government has often said that it will not let the car industry in the country to collapse due to the economic slowdown as it had a good future and was a permanent and integral part of the nation's manufacturing base although it has taken an eternity to come up with a viable solution to help the auto industry in face of job losses, part closing manufacturing bases and sending workers on long leave.

Mandelson is expected to announce a multi-million pound rescue package for the ailing car industry although the details will be known only after the meeting with the executives of car manufactures on Wednesday.

The rescue package, according to the British media may possibly entail allowing car manufacturers to approach the Bank of England and avail of its special liquidity scheme, where it can swap car loans for liquid assets.

In November, the auto industry had held talks with the government and discussed measures to help the UK car industry by making accessing of car loans to be made easier for customers so that they can be enticed to buying cars.

Last month, the UK car makers represented by the Society of Motor Manufacturers & Traders, had written a letter to the Chancellor, Alistair Darling and also spoke with Mandelson, asking for the government to increase it's spending to help the domestic car industry and also tax relief's as also made an urgent demand for state aid of 2 billion to 3 billion.

The UK industry led by Tata-owned Jaguar Land Rover, has always maintained that it does not want a bailout like the one given to the banks but it wanted the banks to resume lending, or state-backed loans or short-term funding to support financially jobs that could be saved instead of being axed.

The British auto industry supports over 200,000 manufacturing jobs, and another 580,000 workers in allied areas such as sales, servicing and refuelling, according to the UK Society of Motor Manufacturers and Traders.

Since the start of the recession, cars have raced to the top of most people's lists of what not to buy. Even those who would like to get a new one may be unable to borrow the money, which is how most purchases are financed. As a result, British vehicle production dropped by 33 per cent in November, compared to the previous year, and new passenger car registrations across Europe fell 26 per cent.

Due to a sharp decline in sales of cars both in the UK and abroad, carmakers have resorted to cutting production and jobs, with Japanese car maker, Nissan axing 1,200 jobs at its Sunderland plant and Jaguar Land Rover has cut nearly 1,800 workers from the 15,000-strong UK workforce.

In November, Japanese car maker, Honda announced shutting down of its Swindon plant in England for two months in 2009. The Japanese car maker has already cut production by 32,000 units and plans to stop all vehicle production at Swindon in February and March, reducing output by 21,000 units.

Toyota has also scaled down operations at its UK plants, and so also has Volkswagen of Germany, at the Bentley, Crew plant. Bentley, the British luxury car maker is majority owned by Volkswagen.

Mandelson was in India last week and had talks with Ratan Tata, owner of Jaguar Land Rover, who had asked for a 1 billion loan from the UK government to tide over the current financial crisis, which has created a credit squeeze.

JLR has consistenly maintained that it was not seeking a bailout but unlocking credit resorted to by the banks in the UK, which has led to a cash crunch not only in his company but elsewhere in the UK.

According to the UK daily The Guardian, reported David Smith, the chief executive of Jaguar Land Rover, is reported to having said last month, "Along with the whole of the UK motor industry, Jaguar Land Rover is not asking for a bail-out. Together with the Society of Motor Manufacturers and Traders, we have discussed with government short-term loans or loan guarantees because banks have cut back on lending." (See: UK government in dilemma over JLR bailout)

In 2007, JLR had made over 300 million profit and, in the first half of last year, again made around 300 million.

After General Motors and Chrysler received a $17.4 billion (12.6 billion) from the US government late last year, David Smith called on the UK government to "put oil back into the engine" of automotive companies.

The UK government had also appointed global consulting firm KPMG and investment bank NM Rothschild to provide guidance on the issues facing JLR and the problems of the car industry.

Lord Digby Jones of Birmingham has been hired as a corporate ambassador for Jaguar Land Rover and when he was Minister for Trade last October before stepping down had opted for the domestic two-litre Jaguar instead of the Japanese-made Toyota, which won him plaudits from the UK motorists for favouring a domestic car instead of a foreign one.

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UK Business Secretary, Mandelson to unveil loan package for car industry