Q&A: Vauxhall and the UK car industry

The news that car production at Vauxhall in Luton is to end has rocked the region and the entire UK motor industry. Professor Garel Rhys, director of Cardiff University's centre for automotive research, explores the key issues.

How much of a surprise is it that Luton is closing?

Just a week ago there was the announcement that they were going to take an extended holiday over the Christmas period, which seemed to be enough to overcome the problems facing the company from weakening sales of the Vectra.

Vectra sales are weakening but that is partly because there is a new model due next year.

What did the experts think the future was for Luton?

From what the company was saying, the UK was still a good place to make vehicles.

After all, they are investing in a very major van project with Renault in Luton, and other projects are being expanded at Ellesmere Port.

General Motors seemed to be backing the UK in terms of vehicle manufacture, so one believed that Luton would get the new Vectra.

This would have provided a solid base for the plant for another seven to eight years.

Has the high level of the pound played a part?

I think the major reason for closing Luton is a General Motors problem in Europe - they simply have too much capacity.

Both the two big US companies, Ford and General Motors have to a certain extent fallen off the pace in Europe.

The European mass producers are now much stronger than they were a few years ago.

That is the main issue, but the high level of the pound obviously does not help the cause of manufacturing in the UK.

On the other hand, if you are very productive you can absorb the high level of the pound - OR you can reduce the British content of your products and import many of the components, as General Motors tends to do in the UK.

Did the closure of Ford at Dagenham play a part?

Certainly the fact that Dagenham has closed, and Ford have got through it, must have had an impact on General Motors.

What General Motors wants to avoid is the problems of Ford where they took too long to address the overcapacity issue when major losses started to appear.

Ford, having prepared the ground, got away with closing Dagenham.

It seemed at one stage there could have been some industrial problems - it has not occurred.

In the case of Vauxhall it has been done so quickly - perhaps they have misunderstood how Ford did it.

There is another factor here. When Ford ceases car production at Dagenham it means there are no Ford badged cars in the UK.

If Ford imports all the Fords, and if the pound is still high, it means they can bring those cars in at very keen prices.

So I think General Motors is looking ahead to the pricing strategy of Ford being able to act like Fiat or Renault who bring cars in from the continent at very low prices.

Is it simply easier to sack British workers than those in Germany for instance?

The Luton plant, like the Dagenham plant, is an older factory from the 1930s and underlying productivity can never be what a modern plant is, that is the basic fundamental.

But it is certainly true that our much vaunted flexible workforce, flexible economy, which attracts industry, can also allow industry to leave easily.

It is undoubtedly true that if you are looking for a plant to close, and there are other problems that the plant faces, then it is easier to get out of that plant than, say, a German plant, a French, Italian or Spanish plant.

Is there going to be much political fall-out from this decision?

There could well be because it is coming on top of Dagenham, the problems at Longbridge, and the controversy over whether the Micra is going to continue to be made at the Nissan plant in the North East of England.

All of these decisions could lead to job losses at a time when the government is in the run-up to the General Election.

Of course the workforce at Luton have done all they could - they entered the three year industrial relations deal with the company - in the third year they even tied their bonuses to the value of the Deutschmark or the euro against the pound.

But questions remain - people will be saying was the government alerted to this?

Why were they not brought into the ring earlier? Where is their industrial intelligence?

All these issues will enter the political arena.

What is the future of car making now in the UK?

Until now, one was able to say that the problems faced by companies in the British motor industry were localised - stemming from particular entrepreneurial failures - not a general problem facing the industry.

Now, it seems there could be a much more widespread problem - and it makes one realise that no plant is safe.

Hopefully the Japanese have taken their own decisions - they are going to switch output to selling into markets where the pound is, relatively, not so high, like North America, they are also reducing the British content, so hopefully their plants here are safe.

But what it does show is nothing now can be taken for granted. The great success story of the British motor industry over the last 15 years, could go into reverse.