David Prosser: The jams are no easier this side of the Atlantic

Thursday 20 November 2008 01:00 GMT

Outlook While the collapse of America's largest car manufacturers continues to fascinate and appal in equal measure, relatively little attention has been paid to the dismal outlook facing the US auto giants' opposite numbers in Europe. Britain's car industry, for example, is in a desperate state, with sales down 23 per cent last month to their lowest levels since 1991.

As a result, British-based manufacturers from Land Rover and Mini to Nissan and Honda have announced plans for short-time working in recent weeks. The outlook is so grim that the Society of Motor Manufacturers and Traders and the Retail Motor Industry Federation are appealing for the same sort of assistance which is causing so much controversy in the US right now. Whether they will have any more success, however, is unclear.

The easiest way to help motor manufacturers would be for Alistair Darling to add their names to the groups for whom tax cuts are now being considered in Monday's pre-Budget report. The industry is lobbying hard for the abolition of the so-called "showroom tax", which will see vehicle excise duty rise dramatically in the first year of ownership for those buying the most polluting vehicles. It also wants Mr Darling to rein back on the car tax increases he previously announced. The lobbying may prove in vain. The Chancellor is committed to the tax increases on environmental grounds and, with a limited pot of money to share out – particularly if he, rather than the Prime Minister, decides on the quantum of tax cuts – it's an easy policy to cling to.

What prospect for the other hope of the car industry, that it might be given leave to apply for help from the Special Liquidity Scheme set up to help banks through their cashflow problems? There's no word yet from the Chancellor, but this doesn't really look a likely solution.

Britain's car industry employs many more people – either in manufacturing or associated businesses – than is popularly imagined. Its collapse would cause serious damage to the economy. However, the risk of such a collapse is not the sort of systemic danger that prompted the authorities to step in when they feared the banking sector was on the verge of imploding.

Moreover, if the motor business gets help from the SLS fund, why shouldn't the other industries also suffering serious difficulties. Are the country's car showrooms any more deserving of help than, say, estate agents. What about the retailers going to the wall across the land?

Note also that the European Commission yesterday fired a warning shot across the bows of EU member states considering bailing out their motor manufacturers. Neelie Kroes, the EC competition commissioner, said there was no comparison between the car sector and banking, implying that attempts to prop up manufacturers might fall foul of state aid regulations.

The European Investment Bank's offer of €25bn to help motor manufacturers develop green technologies – similar to the grants soon to become available in the US – is different, but that money is not available yet and, in any case, won't save the whole sector. For the time being at least, there is no breakdown truck speeding to the rescue of Europe's car industry.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in