U.K. Government May Extend Aid to Carmakers as Job Threat Rises

By Craig Stirling

Dec. 14 (Bloomberg) -- Prime Minister Gordon Brown’s government is considering financial aid for carmakers as the threat of job losses mounts in an industry that almost 800,000 British workers depend on.

Business Secretary Peter Mandelson may offer loan guarantees to auto companies’ finance arms to raise sales and grant a loan to Tata Motors Ltd.’s Jaguar business, the Sunday Times reported today, without saying how it obtained the information. One option is to use 400 billion pounds ($597 billion) set aside for the banking industry to make low-cost loans, the newspaper said.

“What we need is short-term support, short-term access to cash now to make sure that our companies stay alive,” Tony Woodley, joint leader of Unite, the country’s biggest union, told Sky News today. “It was right to bail out the banks and it’s absolutely appropriate now to do something about manufacturing.”

U.S. President George W. Bush’s administration said last week it will consider using money from the $700 billion bank bailout fund to prevent automakers General Motors Corp. or Chrysler LLC from “collapsing.” Brown wants to limit the fallout in Britain as the recession threatens to push unemployment to an eight-year high.

The U.K. government is monitoring the situation with the car industry, a spokesman for the Department for Business, Enterprise and Regulatory Reform said by phone today.

Exceptional Measures

Ministers have said they want to do all they can to help viable businesses and the government needs to ensure it’s taking action to help companies through difficult times, said the official, who declined to be identified in line with U.K. government practice. Any direct intervention would be exceptional, he said.

“People are worried about their jobs, they’re worried about their homes, and that’s exactly when you need governments to step in and act to do something about that to help people through it,” U.K. Treasury Chief Secretary Yvette Cooper said in an interview on the BBC’s Sunday AM show.

Any deal to guarantee car loans would be good news for the industry, Denis Chick, Luton-based director of communications at GM’s U.K. business, said in an interview.

“We can’t get money out of banks to loan to customers to buy cars,” Chick said. “We are doing everything we can to avoid forced redundancies.”

Brown said last week that the government is working on the “second stage” of a rescue for banks, which are reluctant to lend even after tapping into a 50 billion-pound program to bolster their capital. The government now faces pressure to extend aid elsewhere as manufacturing endures the worst stretch of contraction since 1980 and construction slumps.

‘Difficult Time’

Total manufacturing jobs fell by 55,000 in the third quarter from a year earlier to 2.86 million. Unemployment data due on Dec. 17 may show claims for U.K. jobless benefit rose in November to the highest since 2000, according to the median forecast of 24 economists in a Bloomberg News survey.

The British auto industry supports 200,000 manufacturing jobs and another 580,000 workers in other areas such as sales, servicing and refueling, according to data on the Web site of the U.K. Society of Motor Manufacturers and Traders.

Carmakers need “an ability to access liquidity at such a very, very difficult time, and not just from the manufacturers here,” said Woodley, speaking at Ellesmere Port in northwest England, where GM’s U.K. division makes Vauxhall cars. “The component companies are going to jettison tens of thousands of workers unless of course there’s a clear plan.”

GM Measures

GM has offered staff at Ellesmere Port as much as nine months vacation paid at 30 percent of salary as it seeks to cut costs and avoid job losses.

The company’s two priorities are to sell cars and save money, and GM isn’t tight for cash in Britain, Chick said.

Conservative Party lawmaker Michael Fallon, a member of Parliament’s Treasury Committee, said the government should avoid favoritism in its plans. The Conservatives had support of 41 percent of voters in a YouGov Plc poll published in the Sunday Times today, compared with 35 percent for Brown’s Labour Party.

“We’ve got to be very, very careful not to single out particular plants or indeed particular industries in a recession and give them job protection or whatever against the changes that are necessary while other people, particularly smaller businesses, go to the wall,” Fallon told Sky News.

To contact the reporter on this story: Craig Stirling in London at cstirling1@bloomberg.net.