Memorandum submitted by the CBI
The CBI is pleased to provide the following
comments on the Automotive Assistance Programme and the general
situation facing the industry.
The UK automotive industry is one of the most
efficient in the world, and is a critical part of our manufacturing
base. The UK automotive sector underwent considerable restructuring
and consolidation in the years pre-dating the current financial
crisis. It remains a strategically significant industry, but it
needs effective and immediate support from government to ensure
its long-term future.
The CBI believes the government must speed
up the process of issuing guarantees under its Automotive Assistance
Programme to ensure swift access to European Investment Bank and
other investment finance for UK based companies.
As an industry which is heavily reliant on credit,
car-makers and their supply chains have been hit particularly
hard by the credit crunch. The inability to raise or access finance
constrains firms' investment intentions, which has been further
impacted by the collapse in demand for passenger and commercial
vehicles. Previously profitable businesses now face the possibility
of bankruptcy, risking a potentially devastating domino effect
throughout the supply chain.
Given such exceptional circumstances, providing
support for the automotive industry was a necessary step for the
government to take, and was called for by the CBI.
The offer of loans and loan guarantees within
the Automotive Assistance Programme is a reasonable policy response
to the difficult credit conditions facing car-makers and suppliers.
Rather than propping up failing companies, the scheme should help
to unlock funds that will allow viable firms to continue with
their investment plans. In linking funds to only "low carbon"
related projects, the government is encouraging the industry to
make transformational investments to position the UK as a major
player in a future low carbon economy, which is welcomed by the
CBI.
However, the CBI has concerns about the length
and complexity of the application process for the scheme, and
the unnecessary burden that this puts on already struggling businesses.
We fully acknowledge the need for due diligence and to ensure
value and minimise risk to the tax-payer, but the need for action
is immediate. In gold-plating the requirements to access finance
and guarantees the government risks delaying the positive impact
on the automotive industry and the wider economy, undermining
the purpose of the programme.
Additionally, the low take-up of the scheme
to-date based on the number of applications received, and also
considering the zero approvals, reflects the need for radical
improvement in terms of effective communication of the schemes
available, simplification of the whole process, and rapid decision
making.
A CBI member has cited a recent example of an
application by an automotive supplier, supported by two UK vehicle
makers, that has now been withdrawn due to excessive time awaiting
direction from the AAP; a result which has led to potential loss
of future business and the necessity of direct intervention from
at least one of their customers.
The CBI welcomed the government's car "scrappage"
scheme announced in this year's Budget, to stimulate consumer
demand. The initiative, which is to be co-funded by industry,
appears to be more complicated and burdensome than similar schemes
in other European countries, where "scrappage" vouchers
were introduced earlier this year. There is a danger this may
leave manufacturers in the UK at a competitive disadvantage compared
to those in continental Europe where implementation of similar
assistance programmes has been very effective.
11 May 2009
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