Halewood secures baby Jaguar with pounds 50m DTI grant

The British motor industry received a huge boost yesterday as a pounds 50m government grant secured production of the new baby Jaguar for the Ford Halewood plant on Merseyside while Toyota prepared to announce a multi-million pound expansion of its Deesside engine factory. But the good news was tempered by a warning of a further shake-out from the Ford chairman Alex Trotman, who said the world's car-makers suffered 40 per cent excess capacity, most of it in Europe.

Michael Harrison in London and Gavin Green

in Detroit report.

Production of the new small executive class Jaguar, codenamed the X400, will begin in 2001 and rise to 100,000 cars a year, 60 per cent of which will be sold in Europe. The pounds 400m investment will safeguard 3,000 of the 4,500 jobs on the Halewood site. The new model will compete head on with the BMW 3-series, the Audi A4 and the Mercedes C-class and, at current prices, will sell at just under pounds 20,000.

Halewood was one of three sites studied to build X400. The other two were Ford factories in Germany and America. Announcing the go-ahead for the X400 at the Detroit Motor Show, Nick Scheele, Jaguar's chairman, revealed that the investment would probably have gone to the German factory in Cologne - the cheapest option - without the subsidy from the Department of Trade and Industry, Mr Scheele and certain Ford top executives, including the chairman Alex Trotman and the president of its automotive operations Jac Nasser and also favoured building the new Jaguar in England for traditional and emotional reasons.

Only a year ago the Halewood plant was under threat of complete closure following the decision not to build the new Escort on Merseyside. Confirmation that the plant had won the new Jaguar investment was greeted with jubilation. Tony Woodley, national secretary of the T&G trade union and chief Ford negotiator, described the decision as great news for the British motor industry and Merseyside. "It means that one of the most famous brand names in British manufacturing will continue to be built in its home country in large measure because of the work trade unions have put in to resolving this issue."

Chris Clifford, regional director of the North-west CBI, said the announcement was good news for Merseyside and the whole. "Any major investment like this always has a good impact on the local economy, not only in terms of wealth creation and increased spending power but also for suppliers."

Eddie O'Hara, the Labour MP whose Knowsley South constituency includes the 35-year-old body and assembly plant, said: "Workers and management at Halewood have made a tremendous effort to put the past behind them and make the plant cost effective and a plant, that in quality terms, could rival any other," he said.

Ian McCartney, the trade and industry minister, said Jaguar's decision "shows that the UK remains the most competitive location for automotive manufacture in Europe". Negotiations over the aid package are expected to be finalised within three weeks and then submitted to the European Commission for approval.

The go-ahead for the X400 follows the decision last year to build a new medium-sized Jaguar, the X200 at the company's main Coventry site to compete with the BMW 5-series. Mr Scheele said: "Jaguar will turn itself from a small car company into a major player on the international stage. By the time X400 comes on-stream we will be a four-model line company with total production of between 200-250,000 cars a year."

Mr Nasser added: "When Ford bought Jaguar in 1989 most people thought we paid too much and that we didn't look close enough at the soiled merchandise. Maybe we did pay too much at the time but I think history will view our purchase of Jaguar as a very wise move."

But Alex Trotman, commenting on world car industry's excess of manufacturing plants, said: "There is particular over-capacity in Europe which is why profit margins are getting smaller and smaller.'' Ford, he said, had trimmed $3bn from its costs in 1997 and would make further reductions this year though not on the same level.

Toyota's expansion in Deesside is expected to involve investment of pounds 170m and will increase engine production from 200,000 to 350,000 a year, enabling it to supply the new Starlet assembly plant being built in northern France. The announcement is expected on Friday to coincide with a visit to Japan by Prime Minister Tony Blair.