Peugeot, the French car group, is pressing the government for millions of pounds in state aid to help finance a £250m upgrade of its Ryton plant, near Coventry, home of the best-selling 206 model range.
The Ryton plant is bursting at the seams, producing about 200,000 cars a year, and a fourth shift to be introduced at the end of next month will mean the assembly line is working 158 hours a week, leaving it idle for just 10 hours. The new shift will create 700 jobs and boost potential output to 230,000 a year, compared with 85,000 in 1995.
The constraints on capacity, allied to relatively high labour costs caused by the pound's strength against the euro, have raised fears that Peugeot will pull out of Ryton unless it gets substantial government aid to expand the plant, including a new £100m paint-shop, in time for building a new car.
Peugeot, which yesterday launched a new 206 GTI 180, rebutted suggestions of a pull-out. Todd Evans, managing director of the French group's UK business, said: "What we are looking for is the maximum grant we can get to make the case so strong that it's almost automatic that this new investment goes to Ryton."
But in talks with industry ministers and senior officials, Peugeot has been told that because Ryton is officially in the Rugby area it qualifies for less aid under European Union rules than it would if it were genuinely in Coventry.
The Department of Trade and Industry has told the French group that the maximum grant it could get would be 10% under EU rules even if the majority of the 3,900-strong workforce lives in Coventry. Most of the grant would be for training purposes rather than supporting employment but Peugeot is urging the DTI to give it more.
Peugeot points out that it is building an entire new plant with Japanese firm Toyota in the Czech Republic for £250m or the same as it would like to invest in the UK and has said it will consider other sites for the 206 replacement. Mr Todd said: "Whenever you are faced with a major investment you want to make it as viable as possible so we have applied for regional selective assistance. Inevitably you have to have an alternative option under the rules but there's no intention of pulling out of Ryton."
Vauxhall, meanwhile, said it was seeking 15% more efficiency next year at its Ellesmere Port plant in Cheshire where it produces the Astra and new Vectra. The subsidiary of General Motors wants to bring its UK plants, which include Luton, up to the same level of productivity - and flexibility - as GM plants in eastern Germany and Poland. Kevin Wale, managing director, said: "Ideally, we would get our employees to work so flexibly that the plants could operate 24 hours a day, seven days a week, 52 weeks a year - though this could bring maintenance problems."
He said production at Ellesmere Port would rise next year from 130,000 in 2002 to 180,000 but the company would cut its production-line employees from 3,000 now to 2,600 in 2003. Vauxhall, which employed some 500 temporary staff for the introduction of the new Vectra, is expecting to lay off at least 200 of these.
Mr Wale reassured unions that the nearby engine plant, which produces up to 4,000 engines a week, would keep up its operations after unions warned last week that it was under threat as GM shifted production of a new engine overseas. The plant employs 400.
BMW increased its sales forecast for its Mini for the third time this year, predicting that it would sell 140,000 units compared with an initial forecast of just 100,000. Output at its Oxford plant is now expected to top 150,000 from an initial target of 100,000.
