The fallout from collapsing car sales and production cuts by carmakers has triggered a slowdown at one of the UK's biggest automotive parts groups.

GKN, the Midlands engineering group, is cutting all 1,400 temporary staff immediately and reducing output at most factories after sharp contractions in its markets. The group, which has 42,000 employees worldwide, will announce further cuts over the next few weeks as it attempts to reduce production in line with where it expects the market to be next year.

The company said that the contraction in the car industry had been very sudden. The automotive and aerospace group gets two thirds of its business from the car industry. It is heavily exposed to the western European market, which has begun substantial shutdowns, and also to the North American markets, which have suffered sales slides for a longer period than Europe.

Kevin Smith, chief executive, said: “In the space of a few months we have gone from really good growth to a position that our business has never seen before.”

The company gave a warning that its full-year profits are likely to be about 20 per cent down on last year's because of the downturn and because of the costs associated with cutting production. GKN reported pre-tax profits of £199 million last year and its latest guidance suggests that profits this year will be about £160 million.

The company expects that fourth-quarter profits for its automotive division will be about only 30 per cent of those recorded for the fourth quarter of last year.

Shares in GKN closed down 9.8 per cent to 106p on the warnings after falling more than 20 per cent in morning trading.

GKN has more than 50 factories across the world and 37 have planned shutdowns. In Britain its two factories in Birmingham and one in Telford, Shropshire, employ about 2,500 automotive workers, although they have few temporary staff.

Profits in GKN's aerospace division, which makes components for the civil and defence sectors, were up 10 per cent in the past three months but the company gave warning that a strike at Boeing could affect fourth-quarter sales.

On a positive note, the company said that input costs had started to come down in recent weeks. Scrap steel, which is a key raw material in the automotive sector, had fallen from a peak of $870 a tonne in July to $230. GKN said that its planned acquisition of Airbus's Filton factory near Bristol was on track to complete in January.

— JCB, which announced last week that it was cutting the pay of its British workers to help to save jobs, won a £23 million order yesterday from a Russian contractor working on the Winter Olympics. JCB has been hit by weakening demand in construction.

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