MercoPress. South Atlantic News Agency

Dim lights of hope for the British auto industry

UK authorities are betting on the German modelled “scrappage” subsidy to help the industry subsist.

Britain’s Business Secretary Lord Mandelson said the US government has given a “positive response” to his case for continued General Motors production in the UK.

Lord Mandelson was in Washington for talks with US President Barack Obama's car industry bail-out team. Speaking to the BBC, Lord Mandelson said he was “reassured... that there is no deal that has yet been cut” on the future of GM's European operations.

Vauxhall, whose parent company is GM, employs 5,500 people in the UK.

GM has suffered a massive drop in sales during the global economic downturn and was forced to file for bankruptcy protection at the beginning of June.

As part of its restructuring plan, it is trying to sell off GM Europe which contains the German-based Opel, as well as Vauxhall.

The most likely buyer is the Canadian-Austrian car parts firm Magna although Lord Mandelson told the BBC that the US government - which has taken a large stake in GM - is “not closing the door to others with an interest”.

The German government is backing Magna's bid, which has led to some fears in the UK that if Magna is successful, any subsequent job losses will be concentrated in the UK.

In related news the Society of Motor Manufacturers and Traders, SMMT reported that the number of new cars made in the UK fell 43% in May. However the drop, to 67,754 cars, was the smallest of the year. Commercial vehicle production fell 73.5%.

Several firms have temporarily shut factories or cut back production to run down existing supplies after the downturn hit demand for new vehicles.

In the first five months of 2009, car production was down 54% at 319,022 compared with the same period last year.

“Prompt action by manufacturers to realign supply with demand has been painful, but was necessary. There is now a direct link between demand in the marketplace and production volumes,” said Paul Everitt, SMMT chief executive.

He added that “low business confidence” continued to blight demand for commercial vehicles - mainly vans and lorries.

Earlier this week, government figures showed that more than 60,000 orders for cars under the UK's scrappage subsidy scheme had been placed since the initiative was announced.

Car buyers are given a £2,000 discount on a new car if they scrap one that is at least 10 years old.

The government said the scheme had given the car-making industry the boost it needed. It will run until March 2010 and to benefit from it, a buyer must have been the registered keeper, for at least 12 months, of the car that is due to be scrapped.

Half the scheme's cash is being paid for by the government, with manufacturers contributing the rest. The government has set aside £300m to pay for the scheme, which could benefit up to 300,000 customers.