“First banks, now cars, what next?” asked City A.M. The government has announced a support package worth up to £2.3bn for the ailing car industry, which has seen 2,000 jobs go and overall sales fall by an annual 21% in December. It will unlock £1.3bn of funding from the European Investment Bank – at present companies with poor credit ratings can’t access large loans from the EIB without a government guarantee – and back another £1bn of loans itself. This money is tied to investment in cleaner technology.
These measures won’t help much…
This is “pretty measly” by international standards, said David Prosser in The Independent, but the main problem is that it focuses on supply rather than demand. The fall in demand has been accelerated by tighter credit, and all the government is offering on that front is a “vague promise” of a plan to improve access to credit for manufacturers’ finance divisions so that they in turn make more car loans. But that won’t happen fast, and in any case it depends on the credit crunch easing, said Howard Wheeldon of BGC Partners. “Not until the universal credit availability problems are solved and asset destruction has bottomed will consumer confidence be regained.” Meanwhile, we face the prospect of “thousands of unsold cars” piling up in the countryside, said Simon Jenkins in The Guardian.
…nor should they
Business Secretary Lord Mandelson claimed the car industry is “not a lame duck”, said The Daily Telegraph. So why does it need taxpayers’ backing? It needs to reinvent itself by making greener, cheaper cars. The recession, painful as it may be, “will force the pace of such changes” and improve the sector’s long-term prospects. The broader point, as Allister Heath said in City A.M, is that state help for struggling industries is a “road to ruin”. Firms should be allowed to go bust, with their money and workers redeployed where “they are more economically useful”. The free market is better at picking winners and allocating capital than “vote-seeking politicians”. It’s the only route to “sustainable prosperity”.