The EMU factor: Toyota rules out second UK car plant as Vauxhall says sites are safe

Toyota has ruled out building its second European car plant in Britain, partly because the pound is unlikely to be in the first wave of monetary union. But Vauxhall denied it would shift production abroad if the UK failed to enter a single currency. Michael Harrison assesses the mood in industry towards EMU.

The Japanese car giant, Toyota, has abandoned the option of building another assembly line at its Burnaston plant in Derbyshire to manufacture a third model. An announcement on where the pounds 600m investment will be located is due to be made in the new year with France now the clear frontrunner.

The decision to locate the plant on the Continent is based partly on the near certainty that Britain will not be in the first wave of EMU. But it is also linked to Toyota's production schedules. The new model, a small Starlet-sized car, is due to go on sale in two years and its biggest markets will be France and Italy.

A Toyota executive said: "It is very unlikely to be Burnaston. The car in question has to be on sale in 1999 and manufacturing it in Britain would not help our European supply strategy. But inevitably EMU is one of the other factors."

Toyota is among a number of large inward investors to have warned that investment decisions could be affected if Britain stays outside the "euro- zone". BMW, which now owns Rover, has said that exports and component orders worth billions of pounds will be hit if EMU goes ahead without Britain.

Siemens of Germany, which has invested more than pounds 1bn in a semiconductor plant in the North-east, is preparing to tell component suppliers that they will have to bill it and be paid in euros.

The company is one of the most vocal supporters of monetary union and its chief executive, Jurgen Gehrels, is on record as saying it might have made a different investment decision had it known Britain would be so cautious towards EMU.

Nick Reilly, Vauxhall's chairman, said yesterday that joining EMU would provide assurance to its parent company, General Motors, that Britain would pursue sound economic policies.

But he refuted reports, based on comments by GM's chief economist, Mustafa Mohatarem, that it would shut its Ellesmere Port and Luton car plants and shift production to the Continent if the Government failed to enter the single currency.

In a radio interview with the BBC's Financial World Tonight, Mr Mohatarem said: "A lot of manufacturing jobs that are tied to sales in Europe are tied to Britain joining EMU."

Asked if Vauxhall would produce vehicles elsewhere in Europe if Britain failed to enter he said: "For the European market, yes, given the choice."

Yesterday Vauxhall and GM were furiously back-pedalling. Mr Reilly said: "A statement by a GM representative which indicated conceptual support for the UK entering into the EMU was misinterpreted to imply that GM would withdraw from the UK if the UK did not go into EMU."

On the contrary, he said GM had been a significant investor here since 1925 and had just completed a pounds 300m investment in the new Astra at its Ellesmere Port plant on Merseyside. "That is evidence that GM intends to remain a significant producer in the years to come," he said.

There is no doubt, however, that the vast majority of big businesses favour early entry into a single currency and are building up pressure on the Government to make such a commitment, encouraged by signs that the Cabinet is shifting to a pro-EMU position.

After a four-month consultation with members, the Confederation of British Industry announced in July that it supported EMU membership when the conditions were right. Last month, the CBI's director general, Adair Turner, reinforced this, saying that it would favour a clear statement from the Government in favour of the principle of joining EMU.

The Government is expected to set out its position on EMU by the end of the year but has always said a decision on whether to enter and when would be based on the economic merits, not political considerations.