Jaguar to axe Midlands plant as pressure mounts on UK car industry

Car maker says no jobs will be lost when two plants are rationalised into one

The crisis in the British car industry is coming to a head as Jaguar Land Rover (JLR) signals the closure of one of its factories and the fight over Vauxhall's future goes to Brussels.

JLR yesterday announced major re-structuring plans, including the closure of one of its two Midlands plants within 10 years, the end of its final-salary pension scheme, and reduced pay levels for new recruits.

The decision on whether to scrap the Jaguar factory at Castle Bromwich, which employs 2,000 people, or the Solihull Land Rover plant, which employs 5,000, will be made within the next 18 months. But the company says no jobs will be lost, and that it is also creating 800 new positions at its Halewood factory, which will build the hybrid LRX – dubbed the "green Range Rover" – due to go on sale in 2011.

David Smith, the JLR chief executive, said: "This is a plan that recognises the impact the economic collapse has had on our business, and at the same time the opportunities that lie ahead."

The moves were met with approval from Lord Mandelson, the Business Secretary, who has been locked in unproductive talks with JLR since before Christmas. "I know that trading conditions are difficult for the car industry as a whole [and] it is inevitable that we will see further restructuring across the industry," he said. "I welcome the fact that JLR has already implemented a number of proposals to improve its long-term prospects."

Relations between JLR and Lord Mandelson soured after the Business Secretary not only rejected the company's calls for aid during the worst of the crisis, but also withheld guarantees needed for £340m-worth of European Investment Bank loans JLR secured through the Government's Automotive Assistance Programme.

"What JLR people have to say about Mandelson is unprintable," one source said.

But despite the grim implications of JLR's factory closure, and stern words from the GMB trade union yesterday that it will "fight the company on this", the car maker is adamant that it is not a strategy to reduce head count. And industry experts say JLR has needed to reorganise its haphazard manufacturing operations for years. "If JLR did not do this then they are history," Hilton Holloway, at Autocar magazine, said. "They have got to get everything into one factory and make cars as far as possible from the same sets of parts, otherwise there is no future."

There are even suggestions that rather than making a choice between the two Midlands sites, each of which has major shortcomings, JLR could scrap both and move somewhere new. "In an ideal world, JLR would close both and start afresh," Mr Holloway said.

JLR is not the only major British car maker being reshaped by the recession. Following the sale of parent company GM Europe to Magna International earlier this month, the race is now on to save as many Vauxhall jobs as possible. German media reports this week estimated that Magna will let up to 1,200 Vauxhall workers go, equivalent to nearly a fifth of the workforce.

With German factories expected to lose only around 17 per cent of their staff, the numbers appear to confirm misgivings that the Berlin company's central role in brokering the Magna deal – and providing €4.5bn (£4.1bn) of loan guarantees to lubricate it – have bought a reprieve for German jobs. Lord Mandelson wrote to Neelie Kroes, Europe's competition commissioner, this week, branding the Magna plan as too expensive and open to political intervention.