Outlook: Blair drives a hard bargain with General Motors

Outlook on why GM has stuck with luton, the threat of indexation, and cruickshank's proposals for a super-regulator

In the absence of a carrot, Tony Blair decided to follow the advice of Roosevelt and speak softly but carry a big stick. General Motors' pledge last night to maintain operations at its Vauxhall plant in Luton, provided world-class standards of productivity are met, is a victory for the discreet diplomacy of the Prime Minister and Margaret Beckett, President of the Board of Trade.

Luton is not in an area of the country that qualifies for regional selective assistance. Mr Blair therefore could not tempt Vauxhall to build the successor to the Vectra (the uninspiringly named Epsilon) at the plant with the promise of a fat government subsidy.

Instead he appears to have appealed to the company's better nature and persuaded it that what is good for Luton is good for GM too. It is only possible to speculate on what deals have been cut in smoke-filled rooms, what arm twisting went on behind closed doors. But the fact is that multi- national companies are always keen to present themselves as good citizens in whichever country they manufacture.

Governments can make life particularly unpleasant for car makers. It is a moot point whether Vauxhall would have been allowed to retain its designation as a British car maker - still an important consideration for many fleet buyers - if it had closed Luton down, and watch its balance of trade slip even further into the red as it imported yet more cars.

However, all good agreements are ones that allow both sides to claim victory. To be assured of the Vectra replacement, Luton will have to close the 30 per cent cost gap with its Continental rivals at some speed. It is a tall order but the Japanese have shown it can be done. Mr Blair may turn out not to be the only one with a big stick.