The UK government announced its long awaited package to support the country's car industry with £2.3 billion loan guarantees to save 200,000 jobs employed directly by automakers and a further 640,000 indirectly, although it falls far short of the £13 billion asked by the Unite union.
Unveiling the auto package, business secretary Lord Mandelson said that car manufacturers will be able to tap up to £1.3 billion of loans from the European Investment Bank, which was offered to UK companies last year and a further £1 billion loan from the Treasury to fund the development of more eco-friendly cars.
He also announced that funds to support training of employees could be hiked up from £65million to £100million if there is demand from car-makers and Mervyn Davies, the new trade and investment minister, will come out with plans to help the financing arms of car manufacturers to get access to funds.
Speaking at the House of Lords, Mandelson said the aid-package to the car industry would halt the slump in car purchase that has put the jobs of thousands at risk and hoped that a "reinvention" of the British car industry would take place.
He added that the package was no 'blank cheque' nor a 'bail-out but a 'significant boost' to the industry, as the car industry was in 'in the frontline of the downturn' and sales had declined 'faster and further than any other sector since the summer' and ''It would be appalling if we would take the downturn, ride out the recession and let a key sector like this go to the wall.''
He however made it clear that the aid came with strings attached and the industry would have to come up with eco friendly vehicles to avail of the loan.
Tony Woodley, the joint general secretary of the Unite union, who has been asking for £13 billion in aid to the manufactures and allied industries, said that the package announced by Mandelson was "a massive disappointment."
Speaking to the press, he said, "Two billion pounds sounds like a lot of money but at least half of this will be taken up by Vauxhall and Jaguar Land Rover alone, leaving little or nothing for the hundreds of component companies. This is a fraction of the support being given by almost every other government in Europe."
Derek Simpson, joint general secretary of Unite said, "While we welcome any support for technological change in the future, this money from Europe is months away. There could be little left of the industry by the time it arrives. Britain needs those factories and skills there for when the economic revival comes-if they go, they are gone forever.''
"This package is too little. But it is not yet too late. Ministers must leave behind the failed free-market philosophy once and for all and intervene decisively now. The principle of government intervention to support strategically vital industries, such as the car industry, has now been established, and we will be pressing to ensure that we build on this from here on in," he added.
Addressing the House of Commons, shadow business secretary Kenneth Clarke said the package was the same as EU loans funded by the European Investment Bank, which had been announced last year.
He said the government had for months dithered in coming to the rescue of the auto industry as a result car sales collapsed and jobs were lost and also blabbed the Treasury for curtailing Lord Mandelson's attempts to broker a bigger bail-out.
The Society of Motor Manufacturers and Traders, which represents the car manufacturers, said the package was a welcome boost and David Smith, the chief executive of Jaguar Land Rover, welcomed the government's package.
Lord Mandelson is scheduled to meet car manufacturers and unions later to discuss the details of the £2.3 billion package.
Britain's car industry had rolled out 1.65 million cars last year, of which 76 per cent was exported.
The £2.3-billion loan guarantees to UK's car industry is meager compared to the $17 billion given to the US car companies General Motors and Chrysler, France has given Peugeot Citroen and Renault credit lines and carmakers may get €6 billion if they do not shut their manufacturing plants.
Germany has granted conditional aid to GM's Opel with €1.8 billion and offered €2,500 to anyone willing to trade in their old cars for new greener cars.
In Australia Prime Minister Kevin Rudd announced a $6.2 billion lifeline for Australia's ailing car industry in November 2008, with a focus on fuel-efficient vehicles.
Canada gave $12-billion through credit facilities to finance vehicle sales and leases, as well as inventories for car dealers.
Russia raised tariffs on imported cars in January in an effort to protect its domestic car industry while China extended loans to Chery Automobile, one of the country's leading automakers, while the South Korean government announced in December that it would consider providing financial assistance to domestic automakers if they face financial problems.
Japan and India have not offered any help to the car industry.