A car industry rescue just does not wash

I bought a car on Saturday. The salesman’s expression could not have been more incredulous had Elvis ridden past on a unicorn. Buy a car? Did I not know there was a recession on? Well, if I was sure. He was the only salesman present at the dealership. Everyone else had sensibly taken the day off. I was his solitary customer that morning.

The British car industry is going through a rough patch. Motorists are thriftily running their old bangers for longer before replacing them (mine conked out terminally on the M25). In these days of state liberality with future tax revenues, the automotive sector is looking for a handout. Bungling bankers have already had one, so why not petrolheads? UK businesses and trade bodies have been emboldened by the $15bn “bridging loan” for General Motors and Chrysler that politicians have been thrashing out in Washington this week.

The UK car business is not yet as troubled as its US counterpart. This is because it is largely owned and run by foreigners, who have proved better at the task than the locals. No xenophobic nonsense here about “transplants”. Without them, the patient would have expired long ago.

Carmaking is nevertheless well-positioned to be declared the UK’s latest economic disaster area, after banking, real estate, construction and retailing. Car registrations fell 37 per cent last month compared with November 2007. Over 1,000 franchise dealerships are threatened with closure. GKN, an efficient components business, has issued two profits warnings. Wagon, a less efficient one, faces administration. Vehicle makers ranging from Aston Martin to Toyota have cut jobs or shifts.

Now they are engaging in the fashionable activity of asking for state aid, either directly or via trade bodies. Banks and small companies have already secured funds and biotech businesses have lodged their own bid. I am selflessly lobbying for support for right-of-centre male newspaper columnists. A whole supply chain of wine merchants, gents’ outfitters and prep schools depends on us. Due to multiplier effects, the economic impact would be horrendous should a single corduroy-clad ideologue fall victim to reduced pagination.

I would not mind an upfront cash injection, but the motor trade has so far stopped short of requesting this itself. What trade bodies and manufacturers, such as Jaguar Land Rover, evidently want are government debt guarantees to increase credit flows to car financing subsidiaries and to component suppliers. Guarantees are politically appealing because they appear to be a lesser concession than cash loans. This ignores the fact that guarantees generally expose taxpayers to the same risk for less upside.

As Sir Geoffrey Owen of the London School of Economics says: “Supporting Industry A as against Industry B is very problematic.” The government justified its £400bn bail-out of the banks on the basis that they were utilities that route money around the whole economy. The automotive industry argues that its production capacity deserves temporary support because of its sheer size. This does not wash for three reasons. First, carmaking employs fewer staff than some sectors that are receiving no special help, such as retailing. Second, the short-term trough in demand foreseen by optimists could turn into a long-term slump. Third, 25 per cent of carmakers’ world-wide capacity was superfluous even before the downturn, according to Garel Rhys of Cardiff University.

More pertinently, carmaking enjoys an eminence in the hierarchy of labour second only to coal mining. A redundant car assembly worker is popularly deemed to be 10 times more tragic than a workless bank clerk and 20 times more piteous than an unemployed estate agent. This gives the sector leverage when the country is commanded by a Labour administration that is swinging to the left.

However, automotive companies may not secure the industry-wide support scheme. Lord Mandelson signalled that he would only consider selective bail-outs of businesses that are large, lack commercial backers and have technology judged critical to national competitiveness. A struggling car plant might tick all three boxes.

James Foreman-Peck, another Cardiff academic, could have been describing Lord Mandelson’s prescriptions when he referred to “a policy not so much of picking winners, but of losers picking government support”. He was actually writing about Labour governments of the 1960s and 1970s. Their adventures in intervention included propping up the Scottish herring canning industry. Their crowning achievement was to nationalise the shambolic British Leyland. This millstone around the neck of taxpayers cost an estimated £11bn in today’s money. The burden was irrevocably removed only with the demise of MG Rover in 2005.

I regularly drive past Longbridge, where MG Rover was based. A great expanse of the North Works has been cleared and covered in grit prior to redevelopment at some indeterminate date. Lord Mandelson should take a stroll over this manmade desert, ruminating on the folie de grandeur that state bail-outs of industry generally prove to be.

An apt text for this political prince to ponder would be Shelley’s description of a toppled Egyptian statue inscribed: “My name is Ozymandias, king of kings, look on my works ye Mighty and despair!” As with Rover, “nothing beside remains: round the decay of that colossal wreck, boundless and bare, the lone and level sands stretch far away”.

jonathan.guthrie@ft.com

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