Why does this Lord look forlorn? He’s just helped unlock a radical £50bn fund created as part of yesterday’s second bank bail-out.
The Bank of England can now buy the assets that companies use in order to raise finance, including corporate bonds and syndicated loans, in the latest bid to kick-start lending in the UK.
The news came as Lord Mandelson flew to Delhi on a week-long trip which is expected to include meetings with senior representatives at Tata Motors, Jaguar Land Rover’s new Indian owners, which has already pumped an estimated £600m of extra cash into the company without government help.
As in America, yesterday’s latest government rescue package is aimed at encouraging banks and financial institutions to buy more bonds – and keep big companies afloat through the recession.
But not everybody agrees. The first bank bail-out back in October threw £37bn at the “recapitalization” problem and that has not put an end to the UK’s credit crunch. This one, however, includes a second measure which will guarantee mortgage loans, effectively offering mortgage customers a taxpayer loan to encourage them to buy a new car.
Debt-ridden banks will be offered insurance against losing more money from their current spate of bad debts, although ministers stopped short of creating a “bad bank” to buy up those toxic assets.
The £50bn fund will allow the Bank of England to buy high-quality private sector assets, financed by the issue of Treasury bills. The bail-out will get under way on February 2…also known as “Groundhog’s Day” here in the States.
Announcing the package in the Commons, Chancellor Alistair Darling said: “This will enable larger companies to get the funding they need at a lower cost.”
But, condemning the lack of detail about the fund, Shadow Chancellor George Osborne claimed it amounted to “printing money” – a claim Mr. Darling predictably denied.
And Vince Cable, the Lib-Dem treasury spokesman, insisted the plans did not go far enough, adding: “The Government must bite the bullet on the public ownership and control of the banks, to ensure that lending is maintained to sound companies.”
Whatever side of the fence – or the pond – you sit on, it seems that there’s some awfully heavy gambling going on. The best thing you can do is hedge your bets…and go buy a new Land Rover.
The votes are in, and about 70% of the workers elected to shorten their work week and freeze their pay to keep their jobs. Is this an idea whose time has come?
New vehicle registrations fell nearly 22% last month (compared with Feb. ’08) in the UK, raising the specter of massive job losses and perhaps the collapse of the UK auto industry as a whole. While auto dealers and manufacturers are crying to the government for help, auto workers are trying to salvage their jobs by most any means necessary. At Jaguar Land Rover (JLR) they voted overwhelmingly to a pay freeze and a shorter work week which will save the company a reported £68 million.
Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, said: "New car registrations continue to decline and although government recognizes the strategic importance of the UK motor industry, urgent action is still needed. Other European countries have been proactive in assisting their automotive industries and it is imperative that the UK government increases the pace in responding to industry proposals for a scrappage scheme and access to finance and credit."
The scrappage idea - paying consumers to get rid of their old cars - is really taking off in Germany, giving new car sales a much needed boost there. That is certainly another avenue the UK government should explore, but as far as government bailout money, Mr. Everitt should quit whining. It looks like JLR will receive about half of the £2.5 billion they are making available to save their motoring heritage. Yesterday's figures showed British sales of Land Rovers fell 21% last month – broadly in line with the UK market – but Jaguar sales more than doubled, boosted by the Jaguar XF. So all is not doom and gloom in the UK after all. Except maybe the weather.
Jaguar Land Rover has asked the European Investment Bank for up to £281 million in emergency funding – this comes after their workers have agreed to pay freezes and a four-day work week and after they received an order from China for 13,000 vehicles. Are things really that bad?
By now you know all about the UK Government's £2.3 billion car bailout plan, where manufacturers can apply for loans of up to £1.3bn from the European Investment Bank, as well as a further £1bn from the UK Government to help fund greener vehicles. (JLR has just received over £37 million to build the futuristic LRX shown here.)
Still, JLR says they need more, and Business Secretary Lord Mandelson is considering a second installment of rescue funds.
And he’s not the only one who is concerned. The European Parliament has just weighed in on the crisis, where sales have declined now for 10 consecutive months, with 2.3 million (-15.3%) fewer new passenger cars and commercial vehicles registered from May 2008 to February 2009 than the same period last year.
"The Parliament underlines that the financial and economic crisis causes serious problems and that the automotive industry is particularly hard hit. The Parliament puts its full political weight behind support measures from European institutions and governments and stresses that urgency is key", says Ivan Hodac, secretary general of the vehicle manufacturers' trade association ACEA, of which JLR is a member.
The European Parliament is calling on all EU member states to:
* Increase the lending capacity of the European Investment Bank
* Speed up and simplify access to credit
* Coordinate fleet renewal measures throughout the EU
* Support measures to retain a high-skilled workforce
* Facilitate and sustain high levels of R&D
* Ensure a balanced and fair trade agreement with South-Korea
* Scrutinize new regulatory proposals to ensure competitiveness
“The European automobile industry is essential to the EU economy. It is the engine of the manufacturing industries, one of the biggest employers in Europe, the largest investor in innovation and R&D, and a formidable export force", says Hodac.
He said a mouthful. Consider how many small and medium sized companies involved in the supply chain, vehicle sales and after-sales services are affected by this downward trending spiral. And vehicle production is forecast to decline by 25% in 2009.
Maybe things really are that bad just now after all? Not so fast! GM's stock shares have more than doubled in the past two weeks - up from their seventy-year low! - and Form's stock is up 50%! Pete Kelly, a forecaster with JD Power and Associates said "The majority of the world light vehicle market is probably bottoming out. The question is how long until we get an improvement?"
How long, indeed.
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