Page last updated at 14:07 GMT, Tuesday, 26 May 2009 15:07 UK

Vauxhall faces uncertain future

Analysis
By Martin Shankleman
BBC employment correspondent

Vauxhall Astra cars
The Ellesmere Port plant stopped production for one month

As the clock ticks for General Motors, and the car giant edges towards bankruptcy, the UK government is drawing up plans to cope with the fall-out of any collapse.

The government's biggest concern is the future of GM's Vauxhall's plants in the UK, which employ 5000 people at Ellesmere Port and Luton.

Their fate is tied to the future of GM's entire European division which has been put for sale.

Three suitors have tabled bids to take control of GM Europe - Fiat, Magna International and RHJ. But none of them have made their intentions clear about Vauxhall, although there have been unconfirmed reports that UK jobs could be at risk.

Significantly, sources closes to Magna International have indicated that they will take a close look at the viability of the Luton plant if they gain control of GM Europe.

Business Secretary Lord Mandelson has already warned of "painful change" which will be felt both in the UK and Europe.

He has seen some details of the ambitious merger plan proposed by Fiat, which include the closures of factories, even those run by the Italian company itself; but he believes the efficiency of Vauxhall operations will count in its favour.

"What we have to make sure, is that it's the productive plants, where the greatest percentage of GM sales are taking place, and that includes the UK, that have the secure future," he says.

Vulnerable factories?

Peter Mandelson
Lord Mandelson says the company that takes over GM Europe will consolidate

Ellsemere Port's prospects are also boosted by fresh investment at the site.

A new version of the Astra car is due to roll off the production lines at Ellesmere port this autumn, supported by a government grant of £8m for training.

However, the Luton van plant might be considered more vulnerable, because it is operated as a joint venture with Renault under a contract which expires in 2012.

Nonetheless a Vauxhall spokesman described Luton as "a modern plant and highly efficient", and said both its UK plants were "core" to GM Europe.

But an even more pressing problem facing GM Europe is simply one of money, because it is about to run out of cash, possibly within weeks.

Over £3bn is needed to finance its operations over the next few years, and the only viable source of funds on that scale is likely to be from governments.

The German government, at both national and regional level, are standing by to provide emergency funding and loans guarantees which are likely to run into billions.

The BBC has learned the British Government has also been asked whether it will provide financial support.

While no sums have been discussed and nothing has been put in writing, any help, in the form of loan guarantees, could be substantial, running into hundreds of millions of pounds.

However, such state aid could fall foul of the EU's rules on free markets, which are designed to to stop member states subsidising their favoured companies.

But with the stakes so high, the UK government seems set to do all it can within the rules to preserve Vauxhall's jobs and factories.



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