Car makers guarantee French jobs in return for ?6bn state bailout

Author: By Sarah Arnott

President Nicolas Sarkozy’s rescue package offers Renault and PSA Peugeot-Citroë*five-year loans at an interest rate of 6 per cent, and the manufacturers have promised not to close any sites for the duration of the loans. Both companies also say they will not cut jobs this year. Brussels is to investigate the plan to ensure it does not break EU law.

Mr Sarkozy’s bailout came on the same day that Nissan, the Japanese giant 44.4 per cent-owned by Renault, reported third-quarter losses of ¥83.2bn (£609m) and announced plans to cut 20,000 jobs worldwide this year. The Japanese group is now predicting a ¥265bn loss for the full year. Carlos Ghosn, the chief executive, said: “In every planning scenario we built, our worst assumptions on the state of the global economy have been met or exceeded.”

Governments across the world are struggling to support motor industries hit by the recession. In the UK, the Society of Motor Manufacturers and Traders (SMMT) has been lobbying since November to help the industry preserve engineering capacity that, once lost, will be difficult to replace. Sales have been falling dramatically ? new car registrations dropped by 30 per cent in January alone ? and all manufacturers have significantly reduced their output. Jobs are also starting to be lost. Nissan has already wielded the axe in the UK and some 1,200 jobs are to go from its Sunderland factory. Jaguar Land Rover has cut 1,450 jobs since the autumn. Ford is to make 850 redundant by May.

The Government has made moves to help. At the end of January, Lord Mandelson, the Business Secretary, launched a £2.3bn rescue package guaranteeing loans for low-carbon initiatives. But the industry says that the measures target long-term investment, rather than the acute crisis caused by falling demand and inability to raise finance. To address those specific problems, talks have now started between the SMMT and Mervyn Davies, the Trade Minister, about allowing finance companies access to the Bank of England’s credit guarantee scheme.

Following the lead of other European countries, a scrappage scheme is also being considered ? under which owners of old cars could receive a subsidy as an incentive to upgrade to a newer, greener model.

But the structure of the UK car industry precludes obvious solutions. Only 15 per cent of the vehicles made in the UK are sold here, and about 86 per cent of cars bought here are made abroad. Critics claim that measures to stimulate demand will only help foreign manufacturers. Further, by subsidising the purchase of foreign-made cars, the Government would be undoing the benefit of falling sterling to UK manufacturers. Fiscal measures such as interest rate cuts are a better answer, they say.

Conversely, the SMMT says any assistance from the government must take into account the whole industry, not just the manufacturers. Some 500,000 people work in sales, service and repair ? out of the total of 800,000 ? and any demand stimulation would be of direct and immediate benefit to them.

Europe: Revving up the aid

Across Europe, companies are drawing on government schemes to keep skilled workers.

*Germany: The government provides compensation where there is a lack of work that cannot be resolved by employees taking holiday or using up flexitime. It can be a maximum of 67 per cent of income and is available for up to 18 months.

*France: Employers can access either a basic or a complementary “indemnity” to help pay wages. Basic covers temporary situations. Complementary is an additional sum paid to avoid redundancy. Taken together, the two account for 60 per cent of an hourly wage.

*Italy: There are two schemes. One guarantees 80 per cent of the normal wage, for between 12 and 24 months. The other, with slightly different parameters, offers 60 per cent for 24 months.

*The Netherlands: The Dutch government has adapted legislation offering assistance to employers in “exceptional circumstances”. Companies applying must have suffered a 30 per cent fall in turnover in the last two months. Up to 70 per cent of pay can be reclaimed.

*Belgium: At times of temporary blue-collar unemployment, the state will pay a proportion of monthly wages, up to a maximum of ?73.32 a day.

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