Britain's car workers breathed a sigh of relief on Friday. Ford, the US giant, announced a cost-cutting plan that will see the loss of 20,000 jobs, the closure of five plants and the cutting of 900,000 cars' worth of capacity. Mercifully, none of it is in the UK.
That is just as well, because in the past two years, Britain has taken a big hit, chiefly with the end of carmaking by Ford at Dagenham and GM's closure of its Vauxhall plant at Luton.
But the Ford announcement indicates just how weak global car manufacturers feel. General Motors has announced 5,000 job losses; Chrysler announced a year ago that 26,000 jobs would go in three years. The Japanese makers that remain profitable, Honda and Toyota, are relying increasingly on the weakness of the yen.
Professor Garel Rhys of the Cardiff Business School estimates that global capacity is about 15 per cent - 7.5 million vehicles - in excess of what people want to buy. As a result 50,000 jobs could go in total this year.
The question is, what does all this mean for Britain?
Some volume producers with British plants, such as PSA Peugeot Citroën, are doing well. Honda and Toyota have increased production here despite problems. And Nissan is committed to building new models in Britain.
But in some ways the fortunes of 'volume' car manufacturing are becoming proportionately less important in this country. Britain has become more dependent on upmarket cars, which now account for around 10 per cent of global light vehicle production. According to industry estimates, such cars will account for around 30 per cent of UK production once planned increases in capacity have been introduced. If the market for these vehicles grows and they maintain profitability, the UK industry could do well.
It is here that Ford has good news for the UK. It is the biggest investor in upmarket car production in Britain, through its Premier Automotive Group (which includes UK-based Jaguar, Land Rover and Aston Martin, along with Volvo and Lincoln). Buried in the words of Friday's announcements was the fact that Ford expects it regularly to deliver a third of profits to the group by 2005.
It is hard to tell how profitable these brands are now individually - consolidated accounts do not split out profits. But Rhys estimates premium cars currently deliver some 20 per cent of industry profits worldwide on their 10 per cent share. Ford-owned Volvo made big profits - close to $800 million - in 2000, while Jaguar made £82m, although the same group's Land Rover business is still thought to be making losses or at best breaking even. And it is only thanks to Mercedes that Daimler Chrysler is not in greater trouble.
The surest indication of the impor tance of the luxury market came from BMW last November, when it predicted that growth and profits would accelerate now it had no volume aspirations at Rover.
Many analysts argue that with margins for luxury vehicles averaging 6 per cent, compared with 2 per cent for volume makers, they will perform even better as discounts and financing deals intensify volume competition.
Consultancy DRI Wefa says premium brands will grow from a low of 6 per cent of the global market in 1996 to 9 per cent by 2005.
Professor Kumar Bhattacharyya of the Warwick Manufacturing Group says that Ford is recognising realities in the modern car market by emphasising the importance of its Premier Automotive Group: 'The companies that are making money these days in a heavily consumer-oriented market give above what everybody else does. You get high margins for premium cars, but you need the products, you have to innovate and have passion about what you make. That's why they are investing so heavily.'
John Lawson of investment bank Schroder Salomon Smith Barney says that investment is paying off.
'Profitability will start to grow. Ford is worth around $38 billion. It is not hard to construct a scenario where PAG will account for half,' Lawson adds.
But Rhys says Ford will have to work hard to make the model pay. The success of Mercedes and BMW are the exception to the rule: 'They have succeeded with quality and being able to charge a premium, but they have also secured markets which have allowed large enough production runs to make profits.'
Premium carmakers, led by PAG, aim to increase investment in R&D and production and ensure quality, innovation and scale economies. Jaguar wants to double production and models by 2005; Land Rover wants to increase from 160,000 to 320,000 units, with five new models; Aston Martin aims to treble to around 2,000 units.
Ford has already invested some £3bn in Jaguar. It is to spend £2.5bn at Land Rover in Solihull by 2005. BMW is building a £60m Rolls-Royce plant at Goodwood and has spent £230m updating the Oxford plant that makes the Mini - a premium vehicle of sorts. VW plans to spend £500m at Crewe to bring Bentley production from 1,500 to 9,000 units.
But for premium players, growth means capitalising on expanding markets.
Lawson points to two such areas of growth - the first in the market for sports utility vehicles, particularly in the US. There is now fierce competition in this sector, but premium makers are exploiting the $30,000-plus end of the market. Land Rover, which will now be able to exploit Ford's distribution network, wants to increase US sales this year from 29,000 to 50,000.
The second area is Europe. Lawson says: 'The new area is the small-package upscale car - the Mercedes A class, the Audi A2, BMW's UK-made Mini and 1 series (planned for 2004). The margins here are slimmer and may dilute earnings. But manufacturers hope to attract younger motorists, and guide them up the range, where margins fatten from 2-3 per cent to 15 per cent and above.
Manufacturing experts emphasise that as high-volume/low-margin production shifts to low-cost labour markets, premium production represents a key opportunity for Britain.
Bob Dover of PAG says: 'There are only really two places in the world where premium vehicles are made: Germany and Britain. BMW and Jaguar all want to expand in the UK. The volume end has to cope with the exchange rate, and the best suppliers are either going or have gone overseas.'
Rajit Roy of the Warwick Manufacturing Group suggests that engineering expertise is both the cause of investment and the likely beneficiary of it.
'Vehicles such as Land Rover are based on high-value research and engineering. It is best if these capabilities are based close to manufacturing facilities. Thus you see Solihull winning future investment against competition from Ford plants in the US.
'The fact that these vehicles [and everything from Minis to Rolls Royces] are considered British also makes it important that they are produced here.'
The key lies in the fact that the investment poured into old plants such as Cowley and Halewood has increased productivity and the value they add to products - and the profits they make.
This forms the basis of good theory, but there are concerns.
First, as is demonstrated by problems at Volkswagen, where sharing of components between Audi and VW has led to an erosion of the Audi brand, the balancing of scale economies with brand premium is difficult.
Second, as Rhys points out, premiums for top cars are likely to fall, as they have in the past decade, as the quality and style of volume cars increases.
Third, will brands such as BMW stretch across markets from minis through off-road to limousines, and will consumers stay loyal across them all?
At the moment investment is coming into some UK car plants. But in the end the premium brands cannot survive unless their owners' volume operations make money, too.
