Britain Unveils 2.3 Billion Pound Car Industry Aid

The government will guarantee up to 1.3 billion pounds of auto industry loans from the European Investment Bank.

Britain came to the aid of its struggling car industry on Tuesday, announcing it will guarantee up to 2.3 billion pounds ($3.25 billion) of loans to help it cope with a slump in demand due to the credit crunch.

The government will guarantee up to 1.3 billion pounds of auto industry loans from the European Investment Bank and guarantee a further one billion pounds of loans to fund investments that are ineligible for support from the European lender, Business Secretary Peter Mandelson told parliament.

Mandelson said Britain had some of the world's most productive car plants and the government was not offering a blank cheque or operating subsidies.

"For the future, Britain needs an economy with less financial engineering and more real engineering," Mandelson said, in a reference to the complex financial products that have laid low many banks.

A number of European countries are considering measures to help car industries after the effects of the credit crunch and a global downturn stalled demand.

Prime Minister Gordon Brown's spokesman said earlier that the British package would use funds set aside in November's pre-Budget report for specific sector interventions.

"Any interventions we make will be well targeted and (will be) in order to ensure that strong viable businesses that are currently facing difficulty get the liquidity and short term credit that they need to get through this difficult period," he said.

Italy's government is holding talks with manufacturers on Wednesday to discuss possible measures, while France is looking at a 6 billion euro ($7.9 billion) aid package.

In Germany the industry's outlook appears brighter after government plans to issue certificates worth 2,500 euros for all new car buyers who scrap vehicles which are at least nine years old resulted in a flood of buyers entering showrooms.

The U.S. government is being pushed to provide more help to produce fuel efficient cars. It gave $17 billion in December to bail out General Motors Corp and Chrysler. ($1=.7573 Euro)