The price war in the UK car market caused profits at Vauxhall to plunge by more than half last year to £79m despite an increase in the company's sales.
Vauxhall's Luton car plant is receiving an additional £136m investment in facilities and could be chosen to produce new models being planned by its owner, America's General Motors.
The £79m pre-tax profit figure, compared with £185m in 1993, included a provision against Vauxhall's stake in the Avis car rental group, which has been under severe price pressure across Europe.
In 1989 Vauxhall paid £28.8m for a 26.5 per cent stake in Cilva, Avis Europe's holding company. Without the provision profits would have been £102m, giving margins of 2.8 per cent.
Charles Golden, chairman and managing director, blamed the disappointing figures on heavy sales incentives introduced by rivals to clear excess stock after the sales boom forecast in the second half of 1994 failed to materialise.
He said Vauxhall was forced to enter the price war to defend its market position, costing the company £83m. Fleet sales held up, but there was a 6 per cent fall in retail sales in the second half of last year.
Vauxhall had a record turnover last year of £3.6bn, and vehicle production at the Luton and Ellesmere Port plants increased 6.8 per cent to 261,991. Total UK sales were 310,619 - up 2.2 per cent on 1993 - while market share fell from 17.1 to 16.3 per cent.
A £136m investment in facilities at Luton, such as more robotics equipment, is under way and will lift capacity at the plant by 25 per cent to 215,000 cars a year. The investment will not create more jobs.
The extra capacity will be soaked up by the expected increase in production of the replacement for the Cavalier in the autumn. Nearly all the current models are to be replaced by the year 2000. Mr Golden said: "There may even be couple of extra models you would not expect." But he emphasised that no decisions had been made.
Although the car market is expected to pick up slowly this year, Mr Golden said: "This lack of confidence among private buyers has continued into 1995. I think that should raise a red flag to the Chancellor and Bank of England to use extreme discretion in raising interest rates."
Employment levels fell 500 to 9,900, the first time Vauxhall's job numbers have dropped below 10,000.
Production staff will share in the employee bonus scheme, giving them about £440 each.