It is hard to think of an industry less deserving of special state support than the global car industry. Several of its largest players have been complacent and slow to create the sort of vehicles the public wishes to buy. They have also been recklessly overproducing, which partly explains why they find themselves in such severe difficulties now that demand has fallen.
And yet car manufacturers have been greatly favoured by politicians in the downturn. They have secured financial support in the United States, France and Germany. The collection tin is being rattled here in Britain too. Yesterday the Society of Motor Manufacturers and Traders called for more state help, as it revealed UK production in February fell by 59 per cent on last year. The reason the carmakers have been successful in tapping the public purse is no mystery. The huge number of employees in the industry and its long supply chains leave politicians terrified about the potential consequences of car plants shutting down.
The case against offering such firms help is strong. History shows that bailing out failing businesses rarely works in the longer term. It also penalises the sector's smaller firms that can be more dynamic and better attuned to what customers want. Yet there is an economic case for giving support to manufacturers that would probably survive if the global financial system had not gone into meltdown. Some of the more efficient British plants such as Mini in Oxfordshire could have a promising future if they can make it through the next few years.
Such aid should be applied under strict conditions. Help should be limited to bridging loans. State interference on the demand side, such as giving the public money to scrap an old car and buy a new one, should be avoided. A European-wide approach would also be preferable, in order to prevent a race to the protectionist bottom.
It leaves a sour taste for the state to prop up a part of the private sector that is responsible for so many of its own woes. If it must be done, the management of these firms need to understand that the help is strictly temporary. What will determine their survival will not be their political lobbying skills, but the test of the marketplace.Reuse content