Mandelson plans limited aid package for struggling car industry

Low-interest loans could help manufacturers to stimulate demand

Lord Mandelson, the Business Secretary, is poised to unveil a limited rescue package for the UK’s ailing car manufacturers, possibly as soon as this week.

Any help from the UK Government, however, will not go as far as the proposed US car manufacturers’ bailout.

It is believed that Lord Mandelson proposes to offer low-interest loans to the UK car companies, to help them to finance more 0 per cent credit offers for potential customers.

Dennis Chick, the head of communications for General Motors’ UK division, the maker of Vauxhall cars – said that the UK car manufacturers desperately needed to get some liquidity back into their finance organisations.

Although car sales are down 30 per cent over the past year, Mr Chick insisted that the UK auto industry was not “dead and buried”.

“Manufacturers have been implementing some stiff cost-cutting measures,”

he said. “But what we’re after from the Government is anything that will stimulate sales.”

Nikki Rooke, head of communications for the Society of Motor Manufacturers and Traders (SMMT), added: “We’ve already seen a fall in demand in both cars and commercial vehicles, and that’s leading to cutbacks in production.

And we’ve already seen a number of component manufacturers going into administration.

“What we’re looking for is shortterm support, so they can continue keeping the majority of staff in place forwhen the upturn comes.”

She warned that without state help, the industry would be forced to make mass redundancies – a move that has so far been largely avoided.

GM, for example, has cut back working hours at its UK plants and has also offered employees the chance to take a nine-month sabbatical on 30 per cent pay, to help it to survive the current slump.

Although the car companies had been hoping for some direct assistance for their plants, to help them to preserve as many jobs as possible, it is believed that the Government has ruled this out.However, with some of the UK car manufacturers owned by US giants – such as GM – a successful and more comprehensive bailout package by President George Bush’s governmentcould go some way to helping the UKeconomy as well.

Aspokesman for Lord Mandelson’s Department of Business, Enterprise and Regulatory Reform refused to comment on the detail of any government plans. However, he acknowledged that ministers were looking at plans to support businesses. “We’re monitoring the situation here and also in the US,” he said. “Ministers have already said they want to do all they sensibly can to help viable businesses.”

The British car industry employs some 200,000 manufacturing workers and almost 600,000 more in areas such as sales and servicing.

Speaking on Sky News at the weekend, Tony Woodley, joint leader ofUnite, the country's biggest union, urged the Government to act promptly, saying there was no reason for it to hesitate. “What we need is short-term support, short-term access to cashnow to make sure that our companies stay alive. It was right to bail out the banks and it’s absolutely appropriate now to do something about manufacturing.”

Jaguar Land Rover, which was bought by the Indian firm Tata earlier this year, is believed to be one of the companies at the top of the list to receive a UK government loan. Tata executives are understood to have been in talks with Lord Mandelson last week.