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Last Updated: Tuesday, 18 April 2006, 16:28 GMT 17:28 UK
Q&A: Why Peugeot is leaving the UK
French car maker PSA Peugeot Citroen has announced that it will close its only UK factory at Ryton near Coventry. As BBC News explains, the closure of the factory - which makes the Peugeot 206 model - comes as no surprise.

Why are Peugeot closing the factory - have people stopped buying the 206?

In Western Europe, drivers are getting ready to move on to the 206's successor, the 207, which will hit the road later this spring.

But this is not the reason why the UK factory is closing. About five million 206 models have already been sold in just seven years, and Peugeot expects the car to remain popular for years to come in Eastern Europe and developing countries where it will be sold at lower prices.

But they plan to make a Peugeot 207, why won't the new model be built in Ryton?

Cost comparison between Germany and eastern Europe automotive component industry:
Western Germany: 25.8 euros per hour (2005)
Eastern Germany: 16.5
Poland: 5.4
Hungary: 4.7
Czech Republic: 4.2
Slovak Republic: 3.3
Source: Centre for Automotive Research (Germany)

The high cost of making the old 206 in the UK relative to the low price the car will be sold for outside Western Europe means it makes more sense to make it in factories in Eastern Europe and elsewhere in the world.

And although the 207 will be targeted at drivers in Western Europe, it is still advantageous for Peugeot to make it where wages and other costs are lower.

This will enable the French car maker to make sure the 207 is relatively cheap while at the same time boosting its profits which have fallen sharply in recent months.

I bet they wouldn't dare to close a factory of that size in France, would they?

PSA Peugeot Citroen would probably think twice before closing a factory in France, and not only due to national pride.

French car makers rely heavily on their home market and as such they are eager not to offend their customers.

Moreover, internationally they rely heavily on their national image, so any conflict arising from a pull-out of France could have dire consequences.

And since French labour laws give more protection to workers, large-scale closures there would most probably have sparked a higher level conflict than in the UK.

But having said that, PSA boss Jean Martin Folz has said he would not shy away from closing any factories in Western Europe should they prove too expensive.

I heard the car industry is in trouble, so how is Peugeot doing?

Peugeot is doing better than some, but it is struggling nevertheless.

Last year, PSA's operating income fell to 1.94bn euros (1.3bn; $2.3bn) from 2.5bn a year earlier. Net profits fell to 1bn euros from 1.65bn euros in 2004.

And so far this year sales have remained weak, though Mr Folz has said it should pick up during the second half of the year.

When Peugeot pulls out, will there be anything left of Britain's car industry?

That all depends on what you mean by "British".

There are still plenty of factories in the UK. Last year about 1.6 million cars were made here, not far short of record production levels reached during the industry's heyday in the 1970s.

All the major ones are foreign owned, mainly by US, Japanese and German firms. Moreover, those left are generally pretty efficient and profitable operations.

Several British marques have survived. Bentley's factory in Crewe is now owned by Volkswagen Group and it builds 8,000 cars per year.

BMW has built a rival, Rolls-Royce factory in Goodwood in West Sussex, where sales are rising from low initial levels.

BMW also owns the Mini factory in Cowley, Oxford, churning out 200,000 cars a year. BMW recently said it would push production above the 250,000 level, and the German parent is investing 100m to make it happen.

US giants Ford and General Motors (GM) also have factories in the UK.

GM's Ellesmere Port factory is considered a particularly strong operation thanks to strong investment from the US parent. Last year, 190,000 Vauxhalls were made here.

Ford no longer makes passenger cars in the UK, but they make Transit vans in Southampton, diesel engines in Dagenham and petrol engines in Bridgend.

On top of that, there is Premier Automotive Group, Ford's luxury subsidiary, which makes Aston Martin, Land Rover and Jaguar. Of the three, only Jaguar, which last year built 84,000 cars, is being weighed down by gigantic losses.

Japanese carmakers Toyota, Nissan and Honda also have a strong presence, with factories in Burnaston in Derbyshire, Sunderland and Swindon that are often hailed as very efficient indeed.

Last year, the three exported seven out of 10 cars made in the UK. About 767,000 vehicles rolled off their production lines, almost half the cars made in the UK in 2005.

A lesser known star in the UK car industry is Lotus, which does more than merely make cars for specially interested enthusiasts.

Lotus, which is owned by Malaysia's Proton, is also a leading engineering centre for carmakers from all over the world.

Add to that the string of smaller marques like Morgan, TVR and Caterham 7 and it becomes clear that rumours of the demise of Britain's car industry are highly exaggerated.

Selected countries, ordered according to 2005 figures
2003 2004 2005 Change 2004/ 05
Germany 5,506,629 5,569,954 5,757,710 3.40%
France 3,620,053 3,665,990 3,549,003 -3.20%
Spain 3,029,826 3,011,776 2,752,500 -8.60%
UK 1,846,429 1,851,589 1,803,049 -2.60%
Italy 1,321,631 1,142,105 1,038,352 -9.10%
Czech Rep. 441,717 448,106 604,930 35.00%
Poland n/a 522,900 540,200 3.30%
Slovak Rep. 281,165 223,542 218,173 -2.40%
Netherlands 192,634 247,503 180,568 -27.00%
Hungary 126,296 122,661 138,918 13.30%
Finland 19,658 10,510 21,644 105.90%
Source: European Automobile Manufacturers' Association

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