Page last updated at 16:39 GMT, Thursday, 27 November 2008

Gloom dominates UK motor industry

By Jorn Madslien
Business reporter, BBC News

The glitz at this week's annual industry dinner at the luxurious London Hilton in Park Lane belied the reality of the carmakers' desperate struggle for survival.

Vehicles in London
The UK motor industry is struggling

The atmosphere at the black tie event was tense as everyone in attendance was painfully aware of how plummeting sales are forcing carmakers to cut costs, reduce production and mothball factories.

"There is a feeling in the room tonight that we have not experienced before," said Richard Parry-Jones, retired chief technical officer at Ford.

Major industry

Reviving Britain's car sales is vital, not least since the motor industry clocks up an annual turnover of more than 50bn, Mr Parry-Jones said.

"The motor industry is vital to a modern economy," he said.

In a speech during the dinner, which doubles as an important networking event, transport secretary Geoff Hoon accepted that the industry, which he said employs 850,000 people, is important.

Business Secretary Lord Mandelson meets motor industry leaders, who are pleading for more government help
Business secretary Lord Mandelson has been urged to offer assistance

Yet he was loath to make promises to executives hungry for aid.

"Our priority must be, and should be, to boost consumer confidence," he said. "To get the economy moving again, to make your showrooms moving again."

Thursday's meeting with business secretary Lord Mandelson also failed to bring forth any immediate relief for the motor industry, though in a statement SMMT chief Paul Everitt described the meeting as "open and constructive" and suggested "solutions" might be forthcoming.

Getting credit

The motor industry has been in trouble before, of course.

Our priority must be, and should be, to boost consumer confidence
Transport secretary Geoff Hoon

But this time it is not the industry's own fault, according to Toyota Motor Europe's Graham Smith, also president of industry body SMMT.

These "unprecedented market conditions" have come about "as a direct result of the banking crisis", he said.

At the heart of the crisis lies customers' inability to get credit to buy cars, he pointed out.

"Government must ensure the mechanisms are there to distribute the funding," he said, insisting that special liquidity facilities that are currently only available to banks should also be offered to carmakers' finance divisions.

Carmakers also want the government to delay an already announced rise in vehicle excise duty.

Pollution challenges

The motor industry's difficulties are global.

In a global crisis, we cannot rely on Europe alone to support British industry
Graham Smith, Toyota Motor Europe and SMMT

In the US, the Big Three automotive groups, General Motors, Ford and Chrysler, have asked the government to inject $25bn, possibly in addition to an already agreed $25bn package linked to production of vehicles with reduced emissions.

In Europe, the industry has been lobbying for a 40bn euros (33.4bn) bailout package, and has so far been promised at least five billion euros (4.25bn) to help them reduce emissions.

It is time for the UK government to follow suit, insisted Mr Smith.

"In a global crisis, we cannot rely on Europe alone to support British industry," he said.

"We must collaborate nationally to compete internationally."

Vital investment

In particular, Mr Smith warned about how car companies have a tendency to cut research and development budgets when money is tight, thus scaling back their search for ways to reduce emissions.

Customers refuels his car
Better fuel economy is best achieved through research and development

"There is no doubt that the future of the motor industry will be shaped by the European Commission's new car CO2 regulation to be decided next month," he said.

"We cut these budgets at our peril," he said.

Individual firms

Government measures to revive the economy would be welcomed by the trade body British Vehicle Rental and Leasing Association (BVRLA).

"Vehicle sales rely on people having jobs and needing to commute, on companies getting on with their business, on goods needing to be delivered," said John Lewis, director general of BVRLA.

But he also cautioned against government assistance for specific manufacturers, amid suggestions that Jaguar Land Rover is seeking a 1bn injection of tax payers' money.

"The large manufacturers in recent years haven't made any money, and they've gone through boom times," he said.

"Currently, I don't think any manufacturer who's looking for subsidies has proven it has a business model that can survive."

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