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Battered British auto industry sends out SOS

(China Daily)
Updated: 2009-02-26 07:45

LONDON: Car production in Britain fell dramatically in January as shrinking demand dealt a heavy blow to manufacturers amid the global economic crunch. The British government is now facing calls to bail out the industry, boost output and further green production.

In the face of the worst economic crisis in decades, demand for made-in-Britain is at its weakest in 17 years, and a sharp decline in output is expected over the next three months, the Confederation of British Industry (CBI) said recently.

Only 12 percent of companies expected output to increase over the next three months, while 56 percent said it would fall, according to CBI's latest monthly industrial trends survey.

"The weak pound has made UK exports more competitive, but this advantage has been outweighed by falling global demand," said John Cridland, CBI deputy director-general.

Car production in particular has suffered a sharp decline, plunging 58.7 percent in January to 61,404 units, with commercial vehicle output posting a substantial fall of 59.9 percent to 8,351, according to the latest figures released by the Society of Motor Manufacturers and Traders Limited (SMMT).

The British motor industry employs more than 850,000 people and produces about 1.75 million vehicles per year. To keep its wheels turning, the government is facing calls to pour cash into the sector, but the move seems to be losing favor among the public.

"The extent of the decline highlights the critical need for further government action to deliver the measures already announced and ease access to finance and credit," said SMMT Chief Executive Paul Everitt.

Unite, Britain's largest labor union, also warned that a declining output underlines the fact that the country's car industry is in crisis, joining in calls for a government bailout.

The British government unveiled a rescue package at the end of January, which called for "both an economic objective and environmental imperative" including loans of up to 1.3 billion pounds ($1.88 billion) from the European Investment Bank, as well as a further 1 billion pounds ($1.45 billion) in British government loans for eco-friendly vehicles.

"The government needs to act fast to inject cash into the car economy because the banks are failing to do so," said Tony Woodley, joint general secretary of Unite.

To highlight the worsening situation, Woodley warned last Friday that at least one British car producer, which employs more than 6,000 people, faces risk of closure. He declined to identify the plant but said urgent state aid is needed to rescue the declining industry.

The government has described the statement as scaremongering, which could destabilize a company or even an industry. However, the government's response failed to ease public concern that the British car industry might be on the brink of collapse.

Production for overseas markets, particularly Europe, has dealt with the downturn better than production for the domestic market, with a record 83.5 percent of car output allocated for export in January.

According to Everitt, "European markets have been lifted by scrap page incentive schemes."

It was reported that the SMMT has proposed Britain follow France and Germany in adopting the so-called "scrap page scheme", which says owners of old cars and vans who scrap and replace them with new ones will receive a bonus for the changeover.

The incentive is expected to boost car sales as well as reduce emissions since older and more polluting vehicles will be removed from the roads.

However, critics of the government's bailout plan say the auto industry should adjust to the changing situation by lowering car prices to clear stocks.

Falling car sales and mounting stocks are believed to be justification for a government rescue plan, but it will pile more pressure on the country's taxpayers since the government has already spent billions on bailing out many high street banks.

Some people suggest the government invest more in small and medium-sized businesses, instead of only concentrating on big companies.

On the environmental front, the ailing auto sector across the world has been strongly urged to step up efforts to turn out greener cars with higher efficiency and less pollution.

In response, the British government decided to increase funding to direct carmakers toward producing greener cars.

Over a period of 10 years, the average CO2 emissions of new British cars only lost 24 grams per kilometer (g/km), or 13 percent, to touch 165g/km in 2007. This means carmakers have to intensify efforts to improve green production, so that they can attain the EU limit for new car emissions, set at 130 g/km for the year 2012.

Climbing the green ladder is an important goal, but returning the industry's production to normal has become more urgent, as the plunging output has led to significant job losses, shorter working hours and factory closures since the economic downturn started to bite in October.

Job cuts and reduced production have hit all car manufacturers across Britain, including Aston Martin, which is to shed 600 jobs, BMW, set to lay off 850 staff, and Nissan, which is making over 1,200 workers redundant.

Britain has been warned that unemployment will reach close to 2.9 million at the end of the year. The battered car industry may cause more people to lose their jobs as the recession deepens.

Xinhua

(China Daily 02/26/2009 page9)