Car-makers must tighten their belts; IN ASSOCIATION WITH Rensburg Sheppards The Big Feature Sales have plunged 22% and the industry is facing its most difficult time for years. Bill Gleeson reports.

Byline: Bill Gleeson

THE world's car manufacturing industry is the latest sector to bear the brunt of the global economic downturn.

Official government figures published last week show that car sales in the UK are down 22%.

At the weekend, it emerged that General Motors, by its own admission, is on the brink of bankruptcy and has called for US state aid to keep it going.

Nor is the North West immune from the downturn. The region's industry has been relatively resil-ient to date, with local car plants continuing to produce vehicles while factories elsewhere have been closed down.

GM's main car production plant in the UK is at Ellesmere Port, home of the Vauxhall Astra. Ellesmere Port and GM's other Vauxhall and Opel plants around Europe have suffered temporary halts to production in the recent weeks. The 100-year old American industrial icon has been forced to call off merger talks with Chrysler to allow management to concen-trate on short term survi-val. GM's share price closed on Monday night at a 62-year low. One analyst predicted the company's shares could be worthless by the end of the year.

Britain's leading car industry pundit, Professor Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff Business School, forecasts that one of GM's European plants will close soon.

Professor Rhys said: "The position facing the US car market is absolutely dire. These are probably the worst conditions US manufacturers have faced since the slump of 1929 through the 1930s.

American manufacturers have been losing market share in the States for a quarter of a century if not longer.

"Four years ago, for the first time ever, the American manufacturers on aggregate reached a position where they had less than 50% of the domestic car market and it's still falling.

"On top of that, the American consumer has, because of the price of fuel rather than environmental reasons, gone against the leisure vehicle market - mini-vans, 4x4s and pick ups - and gone back to cars or smaller trucks.

"Smaller vehicles are more likely to be Japanese, whether imported or built in North America. If people switch to cars, they might go for Japanese, Korean or possibly European vehicles.

"American manufacturers are facing various attacks on their market position. They have too much capacity, even though they've reduced head count, because of the overhang from their period of market dominance.

"Their cost base is far too high.

They're desperate for a bail-out from government.

"The Americans try to fool themselves that they don't give state aid. But what they do, and they did this for Chrysler in the 70s and 80s, is they give guarantees which means they can keep getting banking facilities even in a market that's jittery.

"I'm sure the Americans will come up with guarantees."

Prof Rhys said the motor industry was heading for a slump and a depression, not a mere recession, and that manufacturers would need to prepare for a continuing downturn.

He predicted European car sales would fall from their current level of over 15m a year in 2007 to 13m in 2009, while UK sales would fall from this year's figure of over 2m to 1.6m by 2011.

"Hopefully, the recovery will start in 2012 and we might get back to the position we were in 2007 by 2012 or 2013," he said.

Prof Rhys said GM's launch of the Astra next year could help the company's European sales, but warned it would not be a miracle cure for the company's ills as market conditions were so dire.

"It doesn't matter if you have new products out this year or not," he said. "It doesn't matter how old the deckchairs were on the Titanic. But it might hold sales up a bit better."

Nor is it just the manufacturers who are suffering.

According to accountants Begb Traynor, the region's network of car dealers and car component suppliers are also hurting. The firm says more than 100 companies in the sector are suffering from "considerable financial distress", and around 15% of this number are, like General Motors, face collapsing into administration in the months ahead.

A S IF to prove the point, national dealership giant Pendragon said that by the end of the year it will have closed 75 underperforming sites and shed a total of 2,500 jobs - 20% of its workforce. The group, which owns the Stratstone and Evans Halshaw brands, is predicting a loss of pounds 30m this year.

Paul Stanley, a partner at Begbies Traynor, said: "The industry faces a macro-economic hill start before the engine begins to be fully functional once more.

"Most UK companies are holding back on capital expenditure, many individuals are concerned about their jobs meaning mortgages and food are often prioritised above a new vehicle, the resale values of old cars is low and, at a time when most cars are bought on credit, this no longer comes cheaply.

"It is a time for belttightening for car dealerships and cutting down on unnecessary expenditure.

Without a rigidly prudent approach, liaison by advisers with relevant government departments with a view to restructuring VAT & PAYE debts, and regular dialogue with funders and franchisers, the industry at large will find itself trapped in a cul-de-sac."

Dave Osborne, national automotive spokesman for the Unite, said: "The situation in the car industry is extremely serious. It's the worst crisis that I can recall in over 30 years. I cannot remember an economic climate like the one we have got.

"If you look at each of the plants in the UK, all of the companies - whether it's Jaguar Land Rover, Vauxhall, Nissan, Bentley or one of the others - have been affected and all have experienced changes in shift patterns, implementing downtime and in some cases voluntary redundancies. None of the companies are immune from it.

"We are seeing reports of really serious problems which have originated in North America, particularly in terms of Ford and General Motors.

"The reports circulating about General Motors possibly running out of cash - that might be happening in North America but it might be devastating news for the UK and Europe, and in particular the people employed in the UK at Ellesmere Port and Luton.

"Everybody is affected by it, whether it is new cars or old cars. The real issue is that as a result of the credit crunch there is no consumer confidence.

"First of all we have got to set about instilling some consumer confidence.

"The initial thing to do is give support to some of the companies which are experiencing difficulties, especially those who wish to borrow money for capital investments. The cut in interest rates was welcome.

"But the higher end of the market, for example Jaguar Land Rover, could be helped by deferring the vehicle excise duty increases which are scheduled for next April.

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CAPTION(S):

Prof Garel Rhys; The new Astra next year may help UK sales; UK plants, including Jaguar Land Rover, have been affected; A line-up of cars prepared for sale: UK sales are predicted to fall from this year's figure of over 2m to 1.6m by 2011; Deferring vehicle excise duty hikes could ease the burden