The UK's Car Production Fell By 18.2% In October

Ford Has Received A £500 Million Loan Guarantee From The Government

The UK's Car Production Fell By 18.2% In October

The British government has given Ford a £500 million loan guarantee in order to boost exports, safeguard jobs and encourage investments in EV technology…

A £500 Million Loan Guarantee 

The UK government has granted Ford of Britain a loan guarantee worth £500 million. It supplements another £625 million loan provided by commercial banks. Both are designed to help the company maintain its exports, protect jobs and encourage investment in EV technologies.

Liz Truss, international trade secretary, has claimed that the guarantee will secure Ford’s place in the country. She said, “this deal firmly puts the UK at the heart of Ford’s plans to grow its export business, reduce emissions and support skilled manufacturing jobs”. She added, “a thriving automotive industry is vital to the success of the UK economy. It brings prosperity and security to manufacturers across the country. That’s why we are putting its needs at the heart of our strategy to remove barriers to trade when negotiating free-trade deals”.

Ford of Britain is one of the UK’s largest exporters; exporting around 85% of the engines and 100% of the transmissions it manufacturers domestically. These are received by around 15 countries on six continents. That said, it’ll be closing its Bridgend plant in Wales in September; with 1,700 people losing their jobs as a result.

To Support, Or Not To Support?

The support offered to Ford of Britain is identical to that provided to Jaguar Land Rover last year. It also received a loan guarantee worth £500 million. However, lobbyists for the automotive industry want targeted, industry-wide measures designed to prop-up car manufacturers post-coronavirus crisis. As it stands, it’s thought that up to one in six automotive-related jobs are at risk.

In particular, lobbyists have suggested that the government reduce taxes and introduce a scrappage-scheme to encourage the take-up of new cars. Similar schemes have been employed in Europe and with some success. Figures like Mike Hawes, from the SMMT, argue that the contributions the sector makes to the economy justifies a support package. In 2019, for instance, the industry was worth around £100 billion in trade for the UK.

However, the question also has to be asked what role the government has in essentially propping up private businesses; and what responsibilities it has, if any, in assisting them when economic hardship presents itself. After all, a small SME with ten employees is unlikely to be bailed out when it faces financial hardship (furlough schemes not withstanding). This is even more significant when we consider the financial incentives offered to automotive executives. Former Aston Martin CEO Andy Palmer was receiving in excess of £4 million a year before, rather unceremoniously, being given the boot.

The Necessity Of Competition

When the government bails out a business, it does so with the money of tax payers. In addition, it can be argued that it’s interfering with free-enterprise and competition which, as far as the automotive industry is concerned, should produce better cars. If the automotive industry is the asset its lobbyists claim it to be, it arguably needs to learn to stand on its own two feet. Moreover, we shouldn’t grow too attached to legacy automakers or their brands (who still laments Rover?). Should they collapse, an alternative will emerge to exploit the market they once dominated. If not, and demand simply evaporates, the business case doesn’t exist in the first instance.

Britain’s automotive industry has a rich history and certainly does make significant economic contributions. But if it’s to survive some commentators have argued that it needs a serious wake-up call; that it needs to streamline manufacturing processes, pursue sustainability and invest in the future; not the bloated pay packages afforded to executives. The government no doubt can help in some instances. But too eager a helping hand will create dependence and, in the long-term, stagnation. If automakers want to survive, they need to innovate and give up on old ways. If they do that, everyone will benefit – from workers on assembly lines to drivers themselves. That, after all, is how markets work.

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