Earlier this year the Birmingham Post brought together leading figures from business, politics and academic for an unprecedented summit aimed at developing a strategy for the automotive sector to survive the perfect storm of the credit crunch and the subsequent recession. From the summit a ten point plan was drawn up and delivered to Business Secretary Peter Mandelson. Alun Thorne looks at how the ten-point plan fared in yesterday’s Budget.
1. The argument: The UK car industry involves 27 car and commercial vehicle manufacturers, with 1.75 million cars and commercial vehicles produced each year, a turnover of £51 billion and in excess of 800,000 UK jobs. The industry supplies over 100 markets worldwide. The industry is playing its part in cutting emissions; average new car CO2 emissions have fallen 16 per cent in the last decade.
The ‘hit’ on the trade balance would be around £10 billion from an industry collapse, and a JLR collapse alone would cost the Government £2 billion in lost income tax, NI, VAT, plus redundancy costs and benefits.
The Chancellor certainly recognised the importance of the automotive sector in yesterday’s speech, describing it as one of the business success stories of the decade.
2. Urgency. We urgently need more speed, clarification and detail on how access to finance is handled. The auto industry supply chain is collapsing day-by-day.
We need innovative new conduits for distributing working capital (via RDAs for example), the application process streamlined and the banks required to release monies within agreed time periods.
The automotive sector is still facing the same issues it was two months ago and workers are still losing their jobs as they wait for Government action.
3. Finance. More finance is required, either through loans or loan guarantees for JLR. The current package of £2.3 billion is a welcome start but doesn’t go nearly far enough.
We urge you to look again at the specific needs of JLR given its strategic importance in R&D and the length of the supply chain it supports.
JLR has consistently called on the Government to support it in the short term by guaranteeing credit during the current downturn and the Government has consistently refused to do so. Last week it was revealed the European Investment bank is prepared to loan the company £270 million if the Government will step in as guarantor. JLR is still awaiting a response.
4. Supply chain. There is a real need to make sure finance support reaches all levels of the supply chain. We need to support firms in presenting business plans if they have less experience.
We suggest you mandate AWM to form a quick response gateway that ensures smaller firms do not fall through the support net.
There was no direct support for the automotive supply chain through financial assistance in yesterday’s Budget.
5. Wage support. A temporary wage replacement scheme is needed to avoid yet more high quality jobs being lost. This would save the state money in the long-run. The more proactive attitude of Welsh Assembly is already creating something of a postcode lottery. We suggest you consider implementing immediately a subsidy scheme, administered by AWM, of £50 per day per employee for a maximum of three months.
Despite clear evidence that schemes in Europe are having proven results, there was no announcement on wage subsidies in yesterday’s Budget.
6. Credit insurance. This is essential throughout the supply chain. There is a ripple effect starting at the top of the supply chain as this is withdrawn. A domestic version of the ECGD may be required to provide this, and would be a low-risk but hugely beneficial means of intervention for the Government. We suggest you announce plans to stimulate demand no later than March 1, 2009.
A scheme providing up to £5 billion of additional trade credit insurance to businesses was launched by the Government yesterday. UK firms will be able to buy six months “top up” insurance after May until the end of the year if credit limits on their UK customers are reduced.
7. Consumers: Credit guarantees for car buyers are required, and the (welcome) support for the banking system needs to be extended to the finance arms of the car firms. We suggest you consider underwriting a level of credit insurance for the next three months.
There were no direct initiatives to increase credit availability for consumers in the Budget.
8. ‘Green’ tax relief. Tax breaks for trade-ins of old cars are already being used successfully in other parts of the EU. There must be a ‘level playing field’ for our automotive industry. Tax breaks for trade-ins could be linked to the purchase of newer, greener models and hence benefit the environment. We urge you to assess rapidly the best European models and introduce a similar scheme by March 1, 2009.
The Government introduced a scrappage scheme yesterday of up to £2,000 for consumers available until next March although the fact that cash-strapped manufacturers will have to stump up half was omitted from the Chancellor’s speech.
9. Integration. It is important to integrate initiatives. There is no point in supporting the supply chain if there is not sufficient demand and vice versa. How do the various Government interventions fit together? For example, does the Asset Purchase Facility apply to the car industry?
We suggest that the various schemes are integrated into one and that it is available to be drawn down no later than March 1, 2009.
Again there was no sign of an integrated strategy to tackle the issues facing the industry.
10. The future. Long term investment in new green technologies is needed, and a variety of policies can be explored here: tax breaks, loans, equity stakes, procurement policy, cluster policy and so on. A radical technological shift is needed and the Government needs to support firms such as JLR in speeding this up.
The Government announced a major financial commitment to supporting new technologies in yesterday’s Budget which will hopefully be available to the automotive sector in its drive to create greener vehicles although the automotive sector was not specifically referenced.