Government aid to car industry is branded 'wasted opportunity'

Not one company has received money through the £2.3bn loan guarantee plan
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MPs labelled the Government's flagship plan to help the ailing car industry as "a wasted opportunity" yesterday because not a single company has benefited from it.

The £2.3bn Automotive Assistance Programme (AAP) – launched with much fanfare by Lord Mandelson, the Business Secretary in January – was designed to help the motor sector to weather the recession.

But despite the massive difficulties in the sector as companies struggled with collapsing sales and frozen bank lending, not a single company has seen any funding in the 10 months of the scheme's life, the House of Commons Business Committee noted.

"The scheme seems to have been a wasted opportunity to support this important manufacturing sector during the recession," Peter Luff, the chairman of the committee, said. "It is up to the Government to prove us wrong, but they must ensure that funds are released to companies very quickly. It is late in the day for this to happen."

The Department for Business says the AAP's failure to pay out is not an indication that the plan has failed. Out of discussions with more than 90 companies, 10 are now working on detailed plans that will yield funding of around £2bn. Of the other 80, some were redirected to other support services better suited to their requirements, the department says. Others found that the promise of a loan guarantee from the Government was sufficient to unlock normal bank lending, and was then no longer needed.

Even the timetable to fulfil the 10 plans on the stocks is not dictated by the Government. "We are working at their pace," a spokeswoman for the department said. "We have made in principle commitments to the companies involved but we can't pay the money out until their investment plans are finalised."

But industry sources claim that the unduly onerous conditions demanded by the Treasury, and the gross inflexibility of the overall scheme, have fatally undermined its efficacy.

"We have been disappointed," said Paul Everitt, the chief executive of the Society of Motor Manufacturers and Traders. "There is clearly something wrong with the construction of the scheme, given that there is £2.3bn unspent in a sector where finance has been so constrained."

Under the AAP, the Government will underwrite up to 75 per cent of loans to eligible applicants, with a minimum value of £5m. It covers £1.3bn of European Investment Bank lending and a further £1bn from "other sources" such as high-street banks.

Even if the scheme had paid out promptly, the AAP was unsuitable for providing the acute assistance the industry needed because eligibility was tied to long-term low-carbon plans. Of far greater impact was the scrappage subsidy introduced in May to boost sales.

European car sales: The East/West divide

European car sales boomed by 27 per cent in November, thanks to the continued effect of scrappage subsidies and fleet renewal schemes.

Some 1.18 million new vehicles rolled out of Europe's showrooms, the sixth consecutive month of growth after the vicious downturn earlier in the year, the European Automobile Manufacturers Association said.

But there is a massive East/West divide. Sales in Western Europe were up by 31 per cent, but in Eastern Europe they slumped by 17 per cent.

Central to the disparity are the scrappage incentives offered to tempt consumers to trade in older vehicles for newer, greener replacements. Such schemes are rare in the East but have been introduced by several of the larger economies, including the UK, Germany and France. But 2010 could see another slump as such the subsidies run dry.