View from City Road: Cutbacks may dent car parts

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NEWS that Ford plants at Dagenham and Southampton are joining Halewood in short-time working is not in itself a serious blow since it involves the production loss of only 5,000 Fiesta cars a year.

In Ford's case there may be a suggestion that, in a generally uninspiring K-registration August, the market leader has not done particularly well.

But it is yet another sign that the buoyant level of vehicle production during the first half of 1991 is unlikely to persist into the second half, particularly as Ford says that overseas demand, which has helped keep production on an even keel, may be flagging.

This is not encouraging news for the UK car component makers. In the first half of this year GKN reported a 77 per cent increase in profits from components and BBA emerged with a 36 per cent gain.

A good deal of this improvement stemmed from strenuous cost-cutting and in GKN's case some notable gains in market share. But such a performance must have been helped by a relatively stable demand background.

If the UK market, the fourth-largest in Europe, is faltering along with Germany, and if US car makers, which have been producing some way ahead of final sales this year, decide to pull in their horns, it could damage sentiment at any time in the component makers' shares.

Dividend cover for GKN and BBA looks adequate enough to protect a maintained payout if production is cut back, and their yields of 7.5 per cent will be a firm cushion. It is arguable whether the same could be said for Lucas Industries and T&N.