Car-makers brace for multiple pile-up

With tens of thousands of jobs at risk, companies across the supply chain are calling for help from the Government. Sarah Arnott reports

BMW's announcement of 850 job losses at its Mini factory in Cowley yesterday made national news headlines – but it is the lesser-known minnows of the Midlands' automotive supply chain that are in mortal danger from the recession decimating the industry.

The tally of redundancies among the big beasts is growing daily. To the west of Cowley, Honda has closed its Swindon factory for four months to clear the glut of vehicles built but not sold. Further north, Aston Martin axed 600 jobs, or one-third of the workforce, at its plant in Graydon in Warwickshire in December. Up in Birmingham, Jaguar Land Rover's two facilities – at Castle Bromwich and Solihull – are bearing the brunt of cuts that saw 500 laid off under a voluntary scheme before Christmas, with another 300 management positions and 150 agency jobs still to go.

But to focus only on the big names underplays the scale of the devastation. Of the 200,000 people employed in the car industry in the UK, some 75,000 work for component makers, supplying everything from drive lines to sealant to radios. Of those, around 50,000 are based in the West Midlands. And as the behemoths pull in their horns, those smaller suppliers – often employing fewer than 100 people – are fighting for their lives.

The Birmingham Chamber of Commerce estimates that as many as 20 per cent of the local car industry's supply chain staff are already either on short-time working or have already been laid off. That is a staggering 10,000 people. Jerry Brackett, the chief executive, said: "Every little firm we deal with is making between 15 and 20 per cent staff cuts as a matter of course just to try to keep going, and we are getting one or two per day who are closing.

"There is always a danger of crying wolf, but when you speak to the companies involved and see them closing down it doesn't feel like posturing," Mr Brackett said.

The car industry is suffering from multiple, simultaneous troubles. The first is simply that people are not buying cars. Registrations were down 37 per cent year on year in November, 21 per cent in December, and 31 per cent January. The second is the credit crunch – finance for the few prospective car buyers that remain is scarce, as is working capital. The third factor, and the most serious for smaller companies further down the supply chain, is the sheer speed of the downturn. Demand collapsed in just a few months and the outlook is worse still. Poor figures for January belied the hope that the pre-Christmas slowdown was exacerbated by end-of-year destocking, and that the industry could hope for a lift from the start of 2009.

Such precipitous declines sent shock waves through the whole supply chain, leaving little time for contingency plans to ameliorate the worst effects. There was no opportunity, for example, to rein in raw materials purchases. Deliveries of commodities like steel may have a pipeline of many months.

As orders ground to a halt with little warning, component makers had shipments of metal that kept arriving even though production had all but stopped – challenging storage capacity and putting even further strain on cash flow.

"The industry is experiencing the most savage downturn imaginable," Andrew Morriss, the chief executive of Stadco, one of the West Midland's largest component makers, said. "We have a fairly small supplier base ourselves, but we are seeing at least one per week fail. Because of the very short notice, there was no chance to prepare for it, so companies just have to immediately enact redundancy plans that are, by their nature, very brutal."

It is not only the smaller companies that are affected. GKN, the UK's only publicly listed components group, is also taking a battering. The company has factories in the region, all of which are on reduced hours, and has slashed 2,800 jobs across its 64-plant global operations since October. A trading update at the end of last month did not rule out further cuts.

Frustration is growing at the Government's tardy response to the crisis. Through the Society of Motor Manufacturers and Traders (SMMT), the industry has been in talks with the Department for Business since November. But although Lord Mandelson, the Business Secretary, announced a £2.3bn loan- guarantee scheme for low-carbon initiatives at the end of January, and has professed an appreciation of the car industry's value to the UK economy, there has been little tangible effect. "There is a lot being said and nothing actually happening on the ground," Mr Morriss said.

The industry is calling for measures more suited to the acute crisis than long-term development plans. One such proposal is a scrappage incentive to boost flagging demand by offering cash to people trading in old cars for newer, greener models. A UK initiative akin to those under way in seven European countries is under review, but a decision from the Government is yet to materialise. Paul Everitt, the SMMT chief executive, said: "Urgent action is needed to get consumers back into the showrooms. It is vital that car buyers are given the confidence to buy now, and a scrappage incentive is a clear signal which has already proved successful."

The SMMT also wants the Bank of England's Special Liquidity Scheme, which allows banks to convert illiquid assets into cash, to be extended to car-makers' finance arms. There are also calls for short-time working relief, offering income support to workers whose hours are cut, which would help employers hold on to skilled staff.

Retention of skills is a major issue, not least as rival European governments launch major support schemes. UK manufacturers bridle at charges that they belong to an anachronistic, failing sector begging for state intervention. The industry is in the process of being decimated because of an unprecedented shock to global demand, they argue. If capacity is allowed to wither, there will be nothing left for the upturn. JLR started discussions with union representatives last week specifically in order to find ways to cut costs without further job losses.

David Smith, the chief executive of JLR, told an audience of manufacturers at a CBI dinner earlier this month: "Three short decades ago, our car industry was renowned for dodgy quality and industrial unrest ... now we are the home to one of the world's most vibrant motor industries ... Until we see confidence return to the economy, the business environment will remain very dangerous for thousands of companies and their employees."