Carmakers will find it easier to raise cash on the money markets thanks to the latest Government bail-out of banks, the Chancellor has promised.
But there were no guarantees a massive Government spending spree, designed to save the British economy, will include funds for automotive manufacturers such as Jaguar Land Rover.
Under the Government’s proposals the Bank of England will buy assets, such as corporate bonds or syndicated loans, up to a total value of £50billion.
It could provide a lifeline to firms such as Jaguar Land Rover, which employs 16,000 in the West Midlands and Merseyside and has asked the Government to make loans of up to £1billion available to help it survive the credit crunch.
Alistair Darling, the Chancellor, said: “The announcement . . . that the Bank of England is willing to make money available to the larger corporate sector, through the system, will help the automotive industry. But this is something that we are talking to the automotive industry and we are well aware of the problems it faces.”
However, although Mr Darling held open the prospect of providing funding, there is still no agreement about providing cash.
By raising demand for corporate debt, the Treasury hopes to make it easier for large companies such as Jaguar to raise funds on the markets.
No funding will be provided directly to big businesses.
Instead, the aim is to get the banking sector lending again.
Jaguar Land Rover has requested government loans or credit guarantees as a substitute for credit which would normally be provided by banks.
The Society of Motor Manufacturers and Traders has warned of dire consequences if funding is not provided.
Workers at Jaguar Land Rover’s factory in Castle Bromwich in Birmingham, which assembles Jaguar XF, XJ and XK models, have begun two weeks of non-production, in a sign of the impact the economic downturn is having on British industry.
But the Government has yet to come to a decision, partly because officials are still combing through the complicated financial arrangements of Jaguar Land Rover’s Indian owners, Tata Group.
Lord Mandelson, the Business Secretary, is to hold talks with Tata as he visits India this week.
He is on a week-long visit to the country, accompanied by 100 British business leaders, to promote trade links between the two countries.
Tony Woodley, the general secretary of union Unite, called for immediate state aid and a long-term strategy to held the car industry adapt to changing times, as he met Gordon Brown in Downing Street to discuss the fate of Jaguar Land Rover.
Mr Woodley said: “In Jaguar Land Rover’s case, the market will pick up but not at the level of yesterday. But that doesn’t mean we should sack people in greater numbers than is needed today.”
He said the car industry was in a “dire state”. He added: “Until we hear from government that they are getting behind our manufacturers with a strategic plan to retain skills and capacity through this downturn, then I fear no car industry job is safe.”
Meanwhile, Andrew Mitchell, the shadow Minister for Birmingham, will meet Jaguar Land Rover managers on Friday, to discuss firm’s situation.
Measures announced by Mr Darling could cost hundreds of billions of pounds. They included underwriting high-risk debt held by the banks. It is feared these so-called “toxic assets” could turn bad as the economy worsens, and the scheme is designed to protect financial institutions against “exposure to exceptional future credit losses”.
Northern Rock, the nationalised bank, will be given more time to pay back its loans to the Government.
This comes after concern that the nationalised lender’s efforts to keep up with its repayments to the taxpayer had forced it to cut its lending too quickly – which did not sit well with Mr Darling’s attempts to unblock lending to homeowners.
Royal Bank of Scotland, which is currently 58 per cent owned by the taxpayer after the previous bail-out – has agreed to swap the Treasury’s £5billion of preference shares with new ordinary shares, effectively increasing the government’s stake in the bank.
A guarantee scheme for mortgage-backed securities will be introduced, in an effort to encourage banks to lend to home-buyers.
The Government’s Credit Guarantee Scheme, also designed to encourage banks to lend, was also extended.
Tory shadow Chancellor George Osborne said the measures were a sign “the first bail-out of the banks have failed.”