Like Longbridge Dagenham has announ-ced production cuts because of slack demand

Like Longbridge, Dagenham has announ-ced production cuts because of slack demand.Nevertheless, the closure of Dagenham would be unacceptable to the British government. So Ford, one of the richest companies in the world, would have little difficulty in obtaining a subsidy to keep the plant open This pattern repeats itself across Europe. The car industry is so politically sensitive that it is virtually impossible to shut down production.Professor Rhys said: "The erosion of profits has seen firms seeking state aid to repair their balance sheets This maintains the excess capacity Such policies cannot be sustained. Governments are increasingly reluctant to bail out firms and anti-monopoly agencies are increasing their vigilance."Renault encountered vast and vociferous opposition when it closed the Vilvoorde plant in Belgium in 1997. Together with the closure of its Portuguese plant, it eliminated 300,000 units of potential production, then introduced three shifts at its remaining factories, slashing its unit costs. At the same time a series of striking new models such as the Espace and the Megane Scenic were created.

Because of the higher productivity, these could be offered at attractive prices. This raised Renault's market share and lifted utilisation rates, giving a strong boost to profits. From being a perennial basket-case, Renault has been turned round and now feels able to take a 40 per cent stake in Nissan, potentially creating the world's fourth- largest car company.Mergers and acquisitions have been the industry's main response to excess capacity. Daimler has merged with Chrysler, Ford has bought Volvo and Fiat is linking with Mitsubishi. Ford's chairman, Jacques Nasser, has predicted that there will be six global players within the next decade - two in the US, two in Europe and two in Japan.However, the creation of DaimlerChrysler involved no reduction in capacity. Meanwhile capacity, notably in South-east Asia and Europe, continues to grow.

Joe Morrison of AT Kearney, the management consultants, said: "Consolidation is going to have an impact but not overnight. What we see at the moment is the development of complementary brands using the same platform."Volkswagen is basing all of its main brands - including Skoda, Audi and Seat - on just four chassis. And the logic of the Renault deal with Nissan is surely the same - that Renault uses Nissan's efficient factories to produce complementary brands. That would ultimately involve plant closures.Mr Morrison said: "Even in France, there is greater acceptance of the needs of the company. European governments will start to ask themselves if it makes sense to invest precious capital in under-utilised plants."Meanwhile, in Britain, nobody feels the need to make a national sacrifice on economic grounds Friday's uproar showed Longbridge will have to be saved It is too big and too important. Yet it will have to make attractive cars at a price consumers will pay.