Car industry asks for additional government help as production slumps again

Production down 56 per cent in first quarter of 2009

The devastating effect of the recession on Britain's car industry was underlined yesterday as new data revealed that car production more than halved in the first quarter of the year.

Professor Garel Rhys of Cardiff Business School called the drop "frankly unprecedented". He said: "Total production is likely to be under half what it was last year."

The number of cars made in the UK during the three months to the end of March fell 56.6 per cent on the same period of 2008, according to the Society of Motor Manufacturers and Traders (SMMT), which called for "urgent action" to save the industry. The only bright spot in the figures is that March production was down only 51 per cent on the same month in 2008, compared to 59 per cent in February.

Peter Cooke, KPMG Professor of Automotive Management at Buckingham University, said: "There is still some way to go on the downside. The problem isn't so much the demand, but the shortage of credit." Over 80 per cent of new cars are bought with some form of credit, he added.

The collapse in sales of new cars has hit the UK manufacturing operations at companies including Vauxhall, Toyota and Jaguar Land Rover. Thousands of jobs in the sector have been lost across the country, and experts warn that more will follow unless further government action is taken.

"Urgent action is necessary to kick-start demand in the motor industry," said Paul Everitt, chief executive of the SMMT. "The motor industry has an essential role in the UK's economic future, but it will be some months before we see any significant increase in output."

The Government has already tried to help the car industry with a scrappage incentive plan unveiled in Wednesday's Budget, as well as the £2.3bn loan guarantee scheme for the sector announced earlier this year by the Business Secretary, Lord Mandelson.

The SMMT said it hoped the initiatives would stimulate the market, but warned they were only a first step. Mr Everitt said: "Efforts to restore confidence and improve access to finance, particularly for companies in the supply chain, are key to sustaining our industrial capability."

One area where scrappage will have no effect is on exports, which accounted for about three-quarters of total production in the UK in the first quarter. And the global picture for the automotive industry remains bleak, with Ford releasing another desperate set of figures yesterday. The US auto group revealed pre-tax losses of $2bn (£1.4bn) for the first quarter of the year, compared to a $477m pre-tax profit in the same period of 2008.

Ford's president and chief executive, Alan Mulally, said: "Our results in the first quarter reflected the extremely difficult business environment and weak demand for autos around the world."

Ford's peers in the US, General Motors and Chrysler, have been forced to turn to Barack Obama's government for support. Ford has not, as yet, asked the government for investment, and said: "On current planning assumptions it does not expect to seek a bridge loan from the US government".

Ford has slashed costs, and is looking to sell off its struggling brands, with a target of breaking even or moving into profit by 2011.

Scrappage stalling? Car dealers ponder the small print

Three days after the Budget, car dealers are sceptical about Alistair Darling's car scrappage scheme, amid concern that manufacturers will not be able to absorb a squeeze on their margins – and that the scheme may cover far fewer drivers than the Government envisaged.

The scheme, which offers a £2,000 discount on a new vehicle to anyone trading in a car older than 10 years, is based on a similar package in Germany that helped to boost car sales by 40 per cent last month. But British dealers are unconvinced.

"People hold on to the same car for a decade either because they have an unusual attachment to it, or because they lack the money to buy a new one," said Michaela Hutton, a director of Hutton Cars in Cumbria. "A £2,000 discount is not going to be enough."

Under the scheme, car makers are required to provide half the £2,000 discount through price cuts, but several dealers pointed out that discounts of at least that size are already available on most models.

"Most car companies simply don't have the margins to offer a further £1,000 discount on new cars," said Martin Augier, the owner of Brighton Suzuki in the South East. "Dealers are probably going to have to share some of that cost and we're still waiting to hear how that is set to work."

Yesterday eight of the 10 leading car manufacturers, including Ford, BMW and Volkswagen, were already advertising the scheme, while some luxury brands – including Jaguar and Mercedes – were mulling whether to take part. Jonathan Leach, a partner at Cridford Porsches in Surrey, described the scheme as "complete nonsense and poorly thought out".

Kunal Dutta