Governments act to save ailing car industries

AS GOVERNMENTS around the world look at ways of bolstering their struggling car industries, British car-makers have been disappointed with a new package announced last week while Fiat has warned the Italian government that failure to provide a suitable bailout deal could cost as many as 60,000 jobs.

Before meeting government ministers in Rome, Fiat chief executive Sergio Marchionne said it was essential to act to protect the car industry’s 375,000 workers as Fiat sales reportedly plummeted 60 per cent in January.

The French government was one of the first to announce US-style loans for carmakers, making available as much as six billion euros ($A12.1 billion), but has been forced to soften its demands for Renault and PSA Peugeot Citroen to rule out factory closures in return for aid.

Left: Fiat President Sergio Marchionne.

British carmakers – especially Jaguar Land Rover (JLR) – have been dealt a blow by the fine print in a 2.3 billion pound ($A5.3 billion) aid package announced last Tuesday by business secretary Peter Mandelson.

JLR had been expected to get the lion’s share of the government-backed loan guarantees, but Lord Mandelson later revealed that the bailout money would be capped at 250 million pounds ($A571 million) per company – about one quarter of what JLR reportedly requires.

The Jaguar and Land Rover brands were bought from Ford last year by Tata Motors, but the Indian carmaker has been hit hard by the global downturn and this week announced a last quarter loss of 2.63 billion rupees ($A85 million).

This was the first quarterly loss in seven years for India’s biggest car and truck producer.

Fellow Indian carmaker Mahindra & Mahindra barely managed to break even in the quarter and has ruled out buying either Hummer from General Motors or Volvo from Ford.

Company vice-chairman Anand Mahindra said Volvo was not “affordable and digestible” while Hummer was not acceptable because it had come to stand for gas-guzzling SUVs, an image Mahindra was trying to avoid.

Ford has resumed talks with Renault about buying Volvo, only a few months after previous negotiations broke down over the value of the Swedish brand, which has just announced losses of more than $2 billion. Renault and Volvo came close to merging in 1993.

While the Indian car industry was previously leading world growth, it is now so depressed that the Federation of Indian Chambers of Commerce and Industry (FICCI) has called for increased government incentives.

FICCI has also suggested a tougher tariff policy to safeguard local carmakers and counter other government-supported developing countries such as China, Thailand, Brazil and Malaysia.

Another boom market, Russia, is also in trouble and this week the Russian deputy prime minister said the government would hold discuss support measures for the huge GAZ Group, which is controlled by Russian billionaire Oleg Deripaska.

Germany has been the world’s biggest exporter of goods since 2003 but even this industrial powerhouse has seen fit to put aside 1.5 billion euros ($A3.0 billion) to fund a program that offers 2500 euros ($A5000) to people who swap cars at least nine years old for new models.

German finance minister Peer Steinbrueck even suggested last week that industries like car-making – which accounts for almost one job in seven – could receive more government support.

The Spanish government is also studying plans to help its struggling car industry after local sales dropped 28 per cent in 2008.

Back in the UK, Honda has said it will not seek any government assistance, despite such a dramatic downturn that it has just closed its modern and highly-acclaimed Swindon plant and will not recommence production until June 1.

As workers completed their final shifts last Friday, Honda UK corporate affairs manager Paul Ormond reassured them that they would all have jobs to return to after the four-month shutdown.

“This might be an extremely difficult time for Honda and the rest of the country, but we shall work through it and, despite what some people might say, Honda has a future in Swindon producing cars,” Mr Ormond told a local newspaper.

“We are an independent company and are responsible for our own operation. Therefore, we have not asked for any government financial assistance and we will continue to manage this situation by ourselves.” However, the same cannot be said of the company’s independent Honda F1 team, which was cut loose by the Japanese carmaker two months ago and is still looking for a buyer with the first race of the 2009 season in Melbourne less than two months away.

The team confirmed it has held meetings with Lord Mandelson’s Department for Business, Enterprise and Regulatory Reform (BERR) since Christmas and a BERR spokeswoman said that an application from Honda Racing would be considered.

“We expect any company in the automotive industry, or in its supply chain with a turnover of 25 million pounds ($57 million) or more, to qualify (for the loans) if it has a viable project to deliver the objectives of the support package,” said the spokeswoman.

Lord Mandelson said the automotive industry was on the “front line of the recession”, but his rescue package has been described by unions and the opposition as “too little too late”.

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