Car industry gets the jitters over crunch

Fears that thousands of workers will lose their jobs in the British car industry intensified yesterday, after finance companies refused to insure firms supplying two of the world's largest car-makers, Ford and General Motors.

The decision will force hundreds of manufacturers across the country to consider whether they wish to consider taking the risk of supplying parts to the US car giants, who have been hit by a sharp fall in sales.

Euler Hermes and Atradius withdrew policies that guarantee payments from the firms, amid deepening concerns about their financial standing. A third credit insurer, Coface, is considering removing the cover.

The news threw a fresh cloud of gloom over the British auto trade, which is already battling a steep downturn as consumers and companies cut back on spending. Some of the biggest car firms such as Nissan, Land Rover, Honda and Ford have announced short-term working, while BMW's Mini factories will shut down for four weeks at Christmas.

Yesterday the Birmingham-based van-maker LDV said it intended to shed 95 full-time manufacturing posts, a day after the truck-maker Leyland announced cuts of almost 250 jobs at its factory in Lancashire.

GM warned this week that it is going through its reserves so quickly – $2bn (£1.35bn) a month – that it may not be able to keep operating beyond the new year. Yesterday, there were doubts that the US Congress would sanction an additional bailout for carmakers in addition to a $25bn rescue package already agreed. Republicans are believed to be opposed to further support for the sector that is backed by Democrats, who represent industrialised areas. There could also be a challenge from the European Union, which is facing difficulties of its own from collapsing carmakers. European Commission president Jose Manuel Barroso said of the American deal: "If it is illegal state aid, we will act at a WTO level."

In the United Kingdom, sales of new cars slumped by 23 per cent in the year to October, the sharpest fall since June 1996. The auto trade now fears the slowdown will lead to further job losses among motor manufacturers and among their suppliers.

Pete West, an automotive expert from Birmingham Chamber of Trade and Commerce, said: "The feeling generally is very bleak at the moment, very downbeat. These guys [suppliers] have done nothing wrong. Alan Sugar could be running one of these companies and, through no fault of their own, they have got a 40 per cent downturn in business."

The UK motor trade is worth £200bn a year, 8 per cent of the economy; with 200,000 employed in production and a further 580,000 in sales, servicing, refuelling, maintenance and other activities.

GM and Ford, largest and fourth-largest carmakers in the world, are among the biggest employers. Ford employs 13,000 workers, with engine-making facilities at Dagenham in east London and Bridgend in Wales and production of Transit vans in Southampton. GM employs 5,000 people at Vauxhall's Ellesmere Port plant in Cheshire which makes the Astra and more at IBC Vehicles' Luton factory, which makes commercial vans.