Foreign firms wheel out pounds 1bn of new money

The car industry was boosted yesterday with news of investment by Peugeot, Vauxhall and Rover thought to be worth almost pounds 1bn.

As the Motor Show kicked off at Birmingham's National Exhibition Centre it emerged that Peugeot is to build a second model range at its plant at Coventry, securing the future of 2,500 staff and probably creating hundreds more jobs among components suppliers.

Peugeot is notoriously cagey about its investment plans but the board is understood to have decided to expand production significantly at the Ryton plant. The car is thought to be a replacement for the 205, which re-defined the small-car market in the 1980s but recently ended a 14-year British sales run.

The news is a vote of confidence by Peugeot in Ryton, which currently assembles the 306 Escort-sized car. The workforce has shrunk from 4,300 to 2,600 in five years and the plant's long-term future had been in doubt. The decision will involve a three-year investment believed to be worth several hundred million pounds. British engineers have already been seconded to France to work on developing the car.

In another sign of the renaissance of the industry, Vauxhall confirmed that it is to spend pounds 300m, its largest single British investment, updating its factory at Ellesmere Port on Merseyside, which has transformed itself over the past 10 years from General Motors' least productive European factory to the lowest-cost manufacturer of the five plants which make the Astra.

The investment, to be backed by a small government grant, will re-equip the site, raising capacity from 145,000 cars a year to 160,000.

Low labour costs and huge productivity strides have maxde Britain increasingly attractive to GM; 40 per cent of Ellesmere Port's Astras go abroad, whereas hardly any were exported five years ago. Nick Reilly, Vauxhall's chairman, said: "Had we still been a domestic only producer, the amount of the investment would have been nothing like the amount we've just announced."