The recession’s devastating impact on manufacturing and automotive jobs, has urged the Government to step in. Through initiatives such as the Scrappage Scheme, the Automotive Assistance Programme (AAP) and the Automotive Council, the Government is trying to safeguard uncertain jobs.
But they can’t continue to bail out the automotive industry with public money for ever. Sooner or later the well must run dry and who will suffer most then?
Government initiatives
In an attempt to increase manufacturing, the Government brought in and extended the Scrappage Scheme. In coalition with car dealerships, the scheme provided 300,000 UK citizens with a £2,000 grant to trade a vehicle older than 10 years in, for a newer model.
Although the scheme increased sales and manufacturing, the funding ran out quickly. The Government decided to extend the scheme with an additional £100m.
The Government’s AAP initiative provides struggling motor companies with £2.3bn in loan guarantees. Apart from supporting recession hit automotive companies, the AAP aims to develop green technologies, fund research in UK vehicle manufacturing and create new jobs.
Tata Motors was first to benefit from the AAP with a £10m loan towards building electric cars in the UK.
Business Secretary, Lord Mandelson commented to The Independent: “The Government is determined to help the car industry to exploit fully the opportunities offered by green manufacturing. Today we are backing Tata as Tata backs Britain.”
The Government also played and important role in the uncertain General Motors (GM) Europe buy out plans. They negotiated back and forth with Canadian car parts maker, Magna on the best possible deal for Vauxhall UK and its workers. Even when GM decided not to sell the European arm, the Government said it would provide financial support.
“GM will be looking for financial support and the UK is prepared to underwrite it. This is a first rate UK company with a good future,” Lord Mandelson said about Vauxhall UK.
Future Challenges
Three major challenges face the British motor industry. Firstly, it relies heavily on exports however; sadly manufacturing currently exceeds consumer demand by 20 .
Secondly, the exchange rate is working against UK manufacturing. If a currency is strong in the country where cars are manufactured but weak where they are sold – it creates high costs for production while the selling income declines.
And thirdly, the industry needs to rapidly cut automotive carbon emissions.
In order to address these challenges a partnership between the Government and the motor industry was created. The Automotive Council is chaired by both Lord Mandelson and former Ford chief, Richard Parry Jones.
At a recent seminar for Society of Motor Manufacturers and Traders (SMMT), Lord Mandelson expressed his concern for the future of the industry. He also commented on the joint venture and said that manufacturers must share the responsibility of the UK supply chain.
“For our part, Government will make sure that good suppliers can prosper here. We will actively seek out more companies to locate here. We re supporting the research base in a big way, especially in low carbon,” Lord Mandelson added.
A drying well?
According to the Times Online, public spending will decrease over the next three years. The country has huge public debt which could increase to £175bn in the current financial year. As a result cost savings need to be made.
Since the UK went into recession, the Government has been using massive amounts of public money to support the automotive industry as well as the banking and finance sectors.
As more funding is needed to bail out companies who directly affect the UK economy, it seems as if other industries could be trailing behind.
Hopefully the current initiatives to assist the motor industry will be sustainable enough, leaving the new Government with time and funding to focus on other sectors too.
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