Car makers beg for aid as sales drop by a fifth

Jaguar Land Rover deal guarantees no more cuts

Some 15,000 fewer new cars hit the road in February compared with the year before as recession continues to buffet the automotive sector.

New car registrations last month were 21.9 per cent lower than in the same month of 2008, the Society of Motor Manufacturers and Traders (SMMT) said yesterday. Although the drop is an improvement on the 30.9 per cent year-on-year fall in January, it is probably accounted for by the cyclical contraction before the registration plate change every March.

The car industry is squealing in pain. Thousands of jobs have already been lost as all the major manufacturers scale back production. Calls for aid from the Government have only been partially met. Lord Mandelson, the Business Secretary, announced a £2.3bn loan guarantee package for the automotive sector at the end of January. But the scheme was only cleared by Europe's state aid watchdogs last week. Companies are now applying for the £1.3bn of loans available from the European Investment Bank. Manganese Bronze, the maker of London's iconic black cabs, is just one group looking for help from the scheme after reporting a 37.5 per cent fall in vehicle sales over the past 17 months.

But the Government has not clarified how the industry can access the other £1bn, and is not expected to do so until a high-level seminar scheduled for next Wednesday. Even once the full scheme is up and running, the loan guarantees are tied to long-term low-carbon developments, rather than the acute demand and finance issues causing such problems in the short term. "What we need now is a more urgent response from the Government, particularly in terms of activity to help demand," Paul Everitt, the chief executive of the SMMT, said.

On the finance question, calls for motor suppliers' finance arms to be able to use the Bank of England's credit guarantee scheme have been rejected in favour of a more complex proposal under which the industry will be included in the Bank's £75bn asset purchase facility. The Bank will be able to buy parts of the loans books belonging to vehicle makers' finance arms via asset backed securities. The plan is better than nothing, but it is not what the industry wanted.

"It would be foolish for us not to take the opportunity but it is not our first choice and we are pushing for clarification on why we can't use the credit guarantee scheme, which could be more straightforward, more direct and more effective," Mr Everitt said.

On the demand side, requests for a scrappage incentive offering cash to people trading in older vehicles for new, more environmentally friendly models are mired in indecision. Similar schemes are already up and running in a number of European countries, and the February registration figures from Germany, where an incentive has been available since the end of January, show a 21 per cent uplift in sales.

Meanwhile, UK motor manufacturers are doing what they can. Staff at Jaguar Land Rover – which has already laid off nearly 1,000 staff – voted by more than 70 per cent in favour of a pay reduction deal yesterday, in return for guaranteed job security for two years.

The package, including reduced working for hourly paid workers and extra hours with no more pay for salaried employees, saves JLR £68m and saves more than 1,000 jobs slated for redundancy. Roger Madison, the national officer for automotive at the Unite union, said: "People will be worse off by about £10 per week, but they will have two years of guaranteed job security. In the short term, we have saved 1,000 jobs, but we have also secured the full 14,000 jobs for long term."

JLR has particular problems because of the debt it was saddled with after its $2.3bn (£1.6bn) purchase by Tata Motors last June. David Smith, the chief executive of JLR, said: "This [pay deal] is an important step for us as a standalone business. It confirms our determination to steer JLR though these extraordinary and challenging times, so that our business is ready to take advantage when the downturn finally ends."