Car makers hike prices despite £2.3bn state rescue deal

Vauxhall and Ford blame plummeting sterling for plans to charge more

Ford and Vauxhall are raising the prices of their cars by as much as 5 per cent, just days after ministersannounced a state-backed bailout package for the motor industry that could cost taxpayers £2.3bn.

The price of a Ford Focus is to go up 5.2 per cent, with average prices rising 4.7 per cent across the range. Vauxhall is set to announce similar rises across its range of six cars and one van within weeks.

The price rises were greeted with anger and surprise, with critics pointing to the US Congress's $14bn (£9.8bn) handout to the country's ailing car giants – including General Motors (GM), which owns Vauxhall – and last week's similar £2.3bn scheme from the UK Government. "As I understand it, the inability to sell cars is the problem," John Thurso, the Liberal Democrat business spokesman, said. "I would have thought the last thing to do in difficult trading conditions was to put prices up."

Matthew Sinclair, a research director at the Taxpayers Alliance, said there was a danger that the government bailout might reap returns for the industry but not benefit the taxpayers who provided the money in the first place. "Too often, bailouts serve the interests of politicians and industry but do little for consumers and are poor value for taxpayers' money," Mr Sinclair said. "If the Government wants to help car makers, it can do so in a way that helps ordinary motorists by cutting road tax and allowing ordinary people the chance to help manufacturers the old-fashioned way, by buying their cars."

The companies themselves blame the price rises on the falling value of sterling, which was languishing at just €1.11 yesterday. Not only are the majority of the 300,000-odd Vauxhalls sold in the UK imported from the Continent, but most of those that are built here are made with parts sourced from abroad. "We are buying in euros and selling in sterling, which is a huge challenge because the pound/euro relationship has gone wonky," a spokesman for Vauxhall said. "We have to keep this business afloat and we have to make some money."

The global car trade has taken a battering as recession-wary consumers rein in spending and credit conditions make finance hard to find for the few buyers that remain. Overall UK car sales dropped by 11 per cent in 2008 – including a staggering 21 per cent year-on-year fall in December. At Ford, sales were down 7 per cent over the year, and Vauxhall dropped by nearly 10 per cent.

"That is a huge chunk of volume to lose, and when you add the fall in sterling, you see a huge reduction inrevenues," the spokesman for GM said. "We have to make some money to cover our costs, which are rising because production is slowing down."

Predictions for the coming year are more dire yet. Europe will produce 12 per cent fewer cars, North America 17 per cent fewer.

With production cuts at car factories across the country, thousands of jobs lost and more under threat, the Business Secretary, Lord Mandelson, last week announced a scheme designed to protect the UK motor industry from irreversible damage. It includes government guarantees of £1.3bn of lending from the European Investment Bank (EIB) and another £1bn in guarantees for non-EIB loans. Officials are also engaged in continuing talks with manufacturers about ways to improve access to finance for both customers and companies in the supply chain. But car companies say the measures are missing the point, complaining that ministers have as yet done nothing to address the short-term financing crisis that is wreaking such havoc with sales figures.