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Mark Sinclair's Blog: 9 April 2009 - Banks vs bangers
Date: 09 April 2009
The tussle between the motor industry and the banks for a bigger slice of the bailout cake seems set to go on until Budget Day, when Chancellor Darling is expected to announce whether he'll pay voters to trade-in their old bangers for new cars.
On one side there is the car industry. It takes land, labour and capital and turns them into wealth. On the other, there are the banks whose speciality of late has been to take other people's wealth and turn it into. much less wealth.
The SMMT published a chart on Monday that contrasted slumping car sales in the UK with perky-looking graph lines from the countries that have launched scrappage schemes. This shows that a "cash for clunkers" programme will work, it said.
But over in the red corner, or rather in the "in the red" corner, the banks clearly believe that this kind of Government cash would be much better spent on, well, banks. They hit back in Tuesday's Times newspaper, which obligingly presented the idea of giving financial help to the UK car industry as a lost cause.
According to the paper, when car sales fell during the Great Depression, they didn't recover to 1929 levels until 1949, or two full lost decades later. The writer mysteriously forgot to mention that there was a good reason for that. No-one made any cars at all during most of the 1940s because the factories had all been taken over for war production.
In my view, supporting the UK car industry is a no-brainer. It accounts for a substantial chunk of UK manufacturing and exports. Moreover, its skills and technology will be badly needed in the more balanced economy that should emerge from the wreckage of the financial crash.
Whether a scrappage scheme is actually the best way to support the UK car industry as a whole is open to question. Fleets don't run nine-year-old bangers, so they will get none of the upside of the scheme but still have to face the downside effects on residual values when the temporary stimulus comes to an end.
The Government needs to be careful not to damage the fleet side of the industry. In the long run it will need fleet buyers to spearhead take-up of low carbon technologies that are too expensive or too new-fangled to appeal to private motorists.
As of Wednesday, it seemed that neither side would get its way in the banks vs. bangers battle. The Prime Minister told The Independent that the Budget will boost his plan to make the UK a world leader in electric car development - but he made no mention of a scrappage scheme.
The technology boost claim is a classic piece of political double counting. Most of the "new" initiatives hinted at by the Prime Minister have already been announced. But it does suggest that the Government is sticking to a support strategy it believes is best-suited to the UK car industry as whole. The Government's earlier decision to underwrite £1.3 billion in EU loans to Jaguar and Nissan (with "green" strings attached) was consistent with this approach.
Alistair Darling has probably also taken note of the fact that sales of city car segment cars have risen 80% year-on-year, according to the SMMT, without any help from the taxpayer. As that's the sector that would see the biggest artificial boost from a scrappage scheme, the Chancellor may feel that these green shoots don't need any additional nurturing at this stage.
