Mandelson Announces £2 billion Automotive Industry Loan Scheme

Yesterday the government announced a package of measures designed to defrost more than £2 billion automotive industry credit that has frozen as a result of the global economic downturn. The measures include guarantees to unlock loans of up to £1.3 billion European Investment Bank (EIB) guarantees for investment in lower carbon initiatives and loans or loan guarantees to support of up to £1 billion of lending for lower carbon initiatives for non-EIB backed projects. Shadow Secretary of State for Business, Enterprise and Regulatory Reform, Ken Clarke, criticised the measures for being “small beer.”

But will the funding offer assistance to UK tyre manufacturers? Here’s what the small print has to say: The measures will “apply to projects over £5 million.” Crucially the announcement specified that UK-based automotive parts suppliers with an annual turnover of £25 million or more could also be considered. UK-based manufacturers of construction equipment (such as diggers and bulldozers) and suppliers that meet the criteria of the framework will also be eligible to apply. The catch is that loan guarantees will only apply to “low carbon” projects. No date for the commencement of loans and loan guarantees under the framework has yet been set since it is dependent on European Commission clearance.

Business Secretary Lord Peter Mandelson’s announcement of the measures follows the German government’s decision to offer motorists 2500 euros to trade-in old cars in return for buying new. On 13 January German chancellor Angela Merkel gave details of the concept as part of a 50 billion euro package of measures designed to give the country’s economy a financial stimulus.

“Britain needs an economy with less financial engineering and more real engineering. The car industry can and should be a vibrant part of that future. The measures include plans to agree a temporary framework with the European Commission to provide loan guarantees to UK automotive manufacturers and large UK automotive suppliers. These will be targeted at initiatives to reduce emissions and energy consumption,” Lord Mandelson commented.