Looming car plant cuts add to calls to extend scrappage

Toyota may suspend one of two production lines at its Burnaston car factory

Toyota is considering suspending one of the two production lines at its car factory in Burnaston, Derbyshire, adding weight to calls for the Government to extend the Treasury-funded car scrappage scheme.

The plant makes Avensis and Auris models on two separate lines, and recently announced plans to build its first European hybrid Aurises there too. But recession has left production running "significantly below" the plant's capacity of 285,000 vehicles per year, and a feasibility study of moving to a single line for both cars is under way.

"If it was just a question of demand, moving to a single line would make sense," a spokesman for the Japanese company's UK's manufacturing business said yesterday. "But it is very easy to say and more difficult to do, because there are practical issues around staffing and logistics and so on."

Toyota has no deadline for a decision, but the factory's 3,500-plus staff are due to go back to short-time working from October, when the company anticipates the benefits of the Government-backed scrappage scheme will dwindle.

Both sales and production of cars have been battered by the economic downturn. Over the year to date, total new car sales in the UK are down by 23 per cent compared with last year, and production is an unsustainable 48 per cent lower.

In May, the Government introduced a £2,000 "cash-for-bangers" subsidy – part-funded by the industry – as an incentive to drivers to trade up to a newer, greener model if they could scrap a car of 10 years old or more. It has had considerable success, with 155,000 people taking up the offer so far.

The scheme accounted for more than a fifth of all the new cars bought last month, helping to push the new car market up by 2.4 per cent year-on-year – its first growth since April 2003. But the £300m of taxpayers' money used to provide the Government's half of the subsidy is expected to run out as early as October, leading to calls for an extension of the scheme.

Toyota has seen enough of an uplift in sales to return staff at Burnaston to full-time working in August and September, having cut back to a four-and-a-half day working week – and a 10 per cent base pay reduction – in April. But the improvement will not have a lasting impact, says Toyota. "The scrappage scheme has given us a slight bounce, but we don't see that as sustainable over the long term," the spokesman added.

Manufacturers and dealers across the country are calling for the scheme to be extended. Proponents argue that because the majority of those taking advantage of scrappage would not otherwise have bought a new car, the VAT boost for the Government cancels out the Treasury's half of the subsidy and makes it funding-neutral for the beleaguered public purse.

There are also considerable dangers that the withdrawal of the funding will take its toll on any fragile shoots of economic recovery. Although a number of countries including France, Germany and Japan are now technically out of recession and Britain is expected to follow, recovery is still weak.

Not only do manufacturers like Toyota expect demand for new cars to sink back to the pre-scrappage doldrums once the subsidy is withdrawn, but the end of scrappage will combine with the reversal of the current VAT holiday at the end of the year, leaving the car industry facing a bleak new year.

"The combination of the subsidies running out and VAT going up again could well produce quite a lot of activity through November and December, which runs the risk of another slump into January or February," Mr Everitt said.

Toyota also announced major cuts in Japan yesterday. The group is closing production lines at its Tahara and Takaoka plants, which could reduce capacity by up to one million vehicles per year.

Fujitsu cuts: 1,200 jobs axed

The Japanese computer maker Fujitsu is to cut 1,200 jobs in its British IT services unit because of lower-than-expected revenues.

Fujitsu, which employs 12,500 people in Britain, said the cuts were necessary to ensure the company remained competitive in the current downturn, and that it was "in a solid position for future growth when the economy starts to recover".

The positions will go from its IT services arm, which employs staff on IT and outsourcing contracts for private companies, councils and the Government. Fujitsu has been hit by companies cutting back on IT spending because of the recession.

The proposed job cuts are expected to be completed by the end of the year following a statutory 90-day consultation with employees.