Britain Offers Automakers $3.2 Billion Support Package

By Kevin Sullivan
Washington Post Foreign Service
Wednesday, January 28, 2009

LONDON, Jan. 27 -- The British government on Tuesday announced a $3.2 billion financial support package intended to make Britain's struggling automakers "greener, more innovative and more productive" as they battle through a deepening recession.

"This industry is not a lame duck, and this is no bailout," Business Secretary Peter Mandelson said in Parliament. "There is no blank check on offer, no operating subsidies."

Unlike the $17.4 billion U.S. bailout of General Motors and Chrysler, and France's plan to pump up to $9.6 billion into its ailing carmakers, the British plan would provide mainly loan guarantees and worker training.

The plan would help Jaguar Land Rover, Vauxhall and other manufacturers borrow about $1.8 billion from the European Investment Bank and provide guarantees for an additional $1.4 billion in loans to develop cleaner engines, hybrid cars and other green technologies.

"We are committed to ensuring that anything backed by the scheme offers value for taxpayers' money, enables us to green Britain's economic recovery, delivers significant innovation in processes or technologies for the long term, supports jobs and skills in Britain," Mandelson told lawmakers.

Britain's auto industry is largely foreign-owned -- Jaguar Land Rover is owned by India's Tata Motors, and companies such as Nissan and Ford have major plants in Britain. But the industry still employs about 800,000 people and accounts for about 10 percent of British exports.

Britain's carmakers have been hit hard by the global downturn as consumer credit has dried up and demand has dropped for new cars.

Industry officials recently reported that car production in December was about half what it had been a year earlier. Manufacturers have cut hundreds of jobs, idled plants for extended periods over the Christmas holidays and warned of deeper cuts ahead without aggressive government intervention.

The Society of Motor Manufacturers and Traders, which last week warned that the auto industry was "battling for our industrial survival," welcomed the government's latest action. "This is an important announcement that recognizes the strategic contribution of the motor industry and follows action in other EU member states, the US and Japan," Paul Everitt, the group's chief executive, said in a statement.

But Tony Woodley, a top official in Britain's largest union, told reporters that the government's plan was a "massive disappointment." He said it would not prevent a "catastrophe" that could cost tens of thousands of jobs in car manufacturing and its related support industries.

Ashvin Chotai, a London-based auto industry analyst, called the government's plan "very sensible" because it would keep the British industry competitive with those in countries where governments have intervened with financial support.

"It's not just a British or U.S. phenomenon, it's worldwide. The industry is in dire straits," Chotai said. "Certain free-marketeers would say, 'Do nothing.' But you need to recognize that these are unusual circumstances."

Special correspondent Karla Adam contributed to this report.

© 2009 The Washington Post Company