Car makers warn of sharp downturn as sales slump: As European manufacturers suffer continued recession, BMW's chairman voices his fears for employment

TWO of Europe's most profitable car makers warned yesterday of the downturn likely to hit the industry this year because of the precipitous decline in car sales on the Continent.

Vauxhall Motors said short-time working would continue indefinitely at its UK plants because of the sharp downturn. The warning came as Vauxhall reported a 70 per cent increase in profits last year to pounds 223.7m but said it would not be able to match that performance in 1993.

As if to reinforce Vauxhall's pessimism, Eberhard von Kuenheim, the outgoing chairman of BMW, forecast that German car sales this year would be 20-25 per cent down on 1992.

He was speaking as the luxury German car maker announced pre-tax profits last year of DM1.5bn ( pounds 641m) - down 16 per cent on 1991 but still better than most other German car makers.

Despite the comparatively buoyant performances turned in last year by Vauxhall and BMW, two of Europe's most profitable car companies, the dominant theme yesterday of both manufacturers was the grim outlook for 1993 as recession tightens its grip across Europe.

William Ebbert, Vauxhall's chairman and managing director, said manufacturers were facing an 'extremely testing time' and forecast that European car sales would fall 8 per cent this year, or more than one million units to 12.3 million.

'Market conditions in Europe are worsening overall and our expectation is that 1993 has little hope of being as productive and profitable for the company as last year,' he added.

Mr von Kuenheim, presenting his last financial results before retirement, was no less downbeat. '1993 will be one of the toughest ever for the German economy,' he said. 'We cannot escape the trend and there will be some decline in turnover and sales. Germany is no longer dealing with a normal recession. The dramatic developments have exposed structural problems which were hidden by the boom of recent years.'

Vauxhall's shorter working week will mean a 15 per cent fall in Cavalier output to 145,000 at its Luton plant in Bedfordshire. Production of the Astra at Ellesmere Port on Merseyside will fall by 10,000 to 120,000.

John Barber, Vauxhall's director of manufacturing, ruled out redundancies 'in the current circumstances' but said Vauxhall would need to balance production according to how its main markets fared this year.

Last year Vauxhall sold a record 402,000 vehicles and increased its share of the UK car market to 16.7 per cent - its highest yet. The company is forecasting a 7 per cent increase in UK car sales this year. But it is less optimistic about the rest of Europe, which last year accounted for 37 per cent of all sales with a total of 111,654 Opel Vectras and Astras exported.

Although BMW has had more success than other manufacturers in staving off the decline in domestic sales, Mr von Kuenheim said it would not continue to escape the trend.

BMW's turnover was down 6.4 per cent and sales were down 5 per cent in the first quarter compared with the same period last year. Mr von Kuenheim's forecast of a 25 per cent drop in German registrations this year is the bleakest so far offered.

Both companies suffered from last autumn's upheaval in the Exchange Rate Mechanism. Vauxhall lost pounds 18.9m because of adverse exchange-rate movements while BMW said its profits had been lowered by DM200m-DM300m.

Equally, both companies were insulated from the traumas that affected many of their competitors by strengthened model line-ups. Vauxhall's 7 per cent year-on-year sales rise was helped by a 21 per cent increase in sales of the new Astra to just under 86,000.

BMW, meanwhile, said it was maintaining market share in all model segments - sales of the top-of the range 7 series in the first quarter were up on the same period last year. The company is enjoying a particularly strong performance in the United States where sales rose 40 per cent in the first quarter.

BMW said the stronger dollar would not compensate for the negative effects of weaker European currencies such as the pound, lira and peseta. But Vauxhall said it expected sterling's devaluation to have a positive impact, particularly on UK component orders.

General Motors, Vauxhall's parent, has increased UK component purchases by pounds 378m to pounds 1bn in the past five years. Tony Burnip, the Vauxhall director responsible for component supplies, said it was likely that purchases in the UK by GM Europe would rise further this year with the amount of business UK suppliers invited to bid for up by a third.