Car production down again but decline slows

Car output falls by 43% and commercial vehicles by 73%
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Although 43 per cent fewer cars were made in the UK last month than in May 2008, the decline is the lowest so far this year, according to the latest industry figures.

Just 67,754 vehicles rolled out of British car factories last month, more than 51,113 fewer than last year and the eighth consecutive month of decline, the Society of Motor Manufacturers and Traders (SMMT) said yesterday. But in April, production was down 55 per cent, in March 51 per cent. And over the whole of 2009 so far it has collapsed by 54 per cent.

The slowing decline suggests the car industry may have reached the end of the drastic cuts needed following the dramatic drop in demand for new cars last autumn. Huge swaths of production capacity were taken out of the UK manufacturing base at the end of 2008 and into the first months of the new year, as all the major car makers cut shifts and some – notably Honda's Swindon plant – closed factory doors altogether.

Paul Everitt, the chief executive of the SMMT, said: "Prompt action by manufacturers to realign supply with demand has been painful, but was necessary. There is now a direct link between demand in the marketplace and production volumes."

The government-backed scrappage scheme – under which drivers of vehicles of 10 years old or more receive a £2,000 subsidy for upgrading to a new model – has also helped to boost production. The latest government figures, released earlier this week, said 60,000 new cars have been ordered as a result of the scheme, which started in May. Mini and Nissan have both rehired 150 staff to meet the extra demand.

"The scrappage schemes in place across Europe are now beginning to have a positive impact, although the full benefits will take a little longer to flow down to companies at all levels in the supply chain," Mr Everitt said.

But while car numbers are improving, albeit relatively, commercial vehicles are faring worse than ever. Van and truck production plummeted by 73.5 per cent in May, compared with the year before, the biggest drop since 1999 and the eight consecutive month. Business confidence surveys may be starting to show glimmerings of an upturn, manufacturing output has tipped into positive, and economic research groups are saying the worst is over. But there is little sign of the optimism feeding through.

"Commercial vehicle production is severely affected by low business confidence," Mr Everitt said. "Businesses across the economy are still holding back on new expenditure and will need to see better access to finance and stronger domestic demand."

Car production figures for June will come under even greater scrutiny, boosted by the scrappage scheme in full flood and the effect of Honda reopening its factory in Swindon at the beginning of the month.