Page last updated at 09:10 GMT, Friday, 19 June 2009 10:10 UK

UK car production drops sharply

Car showroom
It will take a while for the impact of the scrappage scheme to take effect

The number of new cars made in the UK fell 43% in May from the same month a year earlier, the Society of Motor Manufacturers and Traders (SMMT) said.

However the drop, to 67,754 cars, was the smallest of the year. Commercial vehicle production fell 73.5%.

Several firms have temporarily shut factories or cut back production to run down existing supplies after the downturn hit demand for new vehicles.

Impact from the UK "cash for bangers" scheme will take a while to show.

In the first five months of 2009, car production was down 54% at 319,022 compared with the same period last year.

"Prompt action by manufacturers to realign supply with demand has been painful, but was necessary. There is now a direct link between demand in the marketplace and production volumes," said Paul Everitt, SMMT chief executive.

He added that "low business confidence" continued to blight demand for commercial vehicles - mainly vans and lorries.

"Businesses across the economy are still holding back on new expenditure and will need to see better access to finance and stronger domestic demand."

European influence

Earlier this week, government figures showed that more than 60,000 orders for cars under the UK's scrappage subsidy scheme had been placed since the initiative was announced.

Car buyers are given a £2,000 discount on a new car if they scrap one that is at least 10 years old.

The government said the scheme had given the car-making industry the boost it needed. It will run until March 2010 and to benefit from it, a buyer must have been the registered keeper, for at least 12 months, of the car that is due to be scrapped.

Half the scheme's cash is being paid for by the government, with manufacturers contributing the rest.

The government has set aside £300m to pay for the scheme, which could benefit up to 300,000 customers.

A similar scheme was introduced in Germany earlier this year.

"The scrappage schemes in place across Europe are now beginning to have a positive impact, although the full benefits will take a little longer to flow down to companies at all levels in the supply chain," Mr Everitt said.

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