Select Committee on Trade and Industry Minutes of Evidence


Memorandum submitted by Vauxhall Motors Limited

INTRODUCTION

  Vauxhall Motors Ltd welcomes the opportunity to give oral evidence to the Trade and Industry Committee for its inquiry into Vehicle Manufacturing in the UK. In this memorandum we set out some of the issues which we as a company see as relevant to this inquiry.

  Our opinions on these issues are informed by our analysis of their impact on our business. However, Vauxhall Motors would also ask the Committee to take into account the submission from the Society of Motor Manufacturers and Traders (SMMT) with whom we share many common view-points.

ABOUT VAUXHALL MOTORS

  Vauxhall is one of the largest motor vehicle manufacturers in the UK, and has been part of the world-wide General Motors organisation since 1925. The first Vauxhall car was built in 1903 and manufacturing started in Luton in 1905.

  Sales of Vauxhall passenger cars and vans in the 1999 calendar year reached 291,598, vehicle production in the UK was 315,205 units, from a total workforce of 10,178. It is estimated that approximately 100,000 people are employed throughout the entire supply chain to support Vauxhall's presence in the UK from raw material suppliers to dealership staff.

  One major manufacturing facility, UK parts warehouse and headquarters are located in the Luton area. The second major manufacturing facility where the Astra is produced was opened in Ellesmere Port in 1963, and in 1992 a major engine facility was added, exporting V6 engines and components throughout the world.

  IBC vehicles, Vauxhall's associated company in Luton, currently builds the Frontera recreational vehicle for UK and export markets and by the end of the year will be building a new light commercial van as part of a partnership agreement with Renault. It was announced in May that production of the Frontera will be moving to Ellesmere Port.

  Vauxhall is the largest private employer in both Bedfordshire and Cheshire and makes a valuable contribution to the economic and social welfare of these areas. The future employment of these people, and the resulting prosperity of the two regions, heavily depends on Vauxhall's ability to compete both externally and internally with GM's European sister plants.

  1999 saw a number of innovative announcements by Vauxhall. The Zafira multi-purpose vehicle with its flex seven seating system was launched to critical acclaim and we became the first UK vehicle manufacturer to offer internet vehicle sales on-line. Our cleaner fuels market offering has continued to show a strong performance and we were delighted to be awarded the world's largest single order for dualfuel vehicles.

  For our employees, we have recently enhanced our Family Friendly policies, offering a new industry-leading maternity and paternity benefit programme.

  Our retail operations are provided by 507 franchised retailers throughout the UK.

KEY ISSUES

The euro and Vauxhall's manufacturing and scheduling policy

  Vauxhall supports the Government viewpoint that UK should enter EMU once the economy has demonstrated that it meets the stability pact criteria and that the economy meets the Treasury's five economic tests.

  Once these conditions are met, Vauxhall believes that UK should join the single currency at the earliest opportunity and at the right level to maintain competitiveness. Our view on this issue is borne purely from a business viewpoint.

  The business reasons are derived from the potential cost savings and the increase in competitiveness that joining the euro would achieve for us at Vauxhall and, we believe, for other companies operating in the international market place. It has much to do with the structure of our operations across Europe and the way in which manufacturing and investment decisions are reached.

  As previously stated, Vauxhall Motors is the UK subsidiary of General Motors (GM). Since 1986, GM has been integrating its operations in Europe to form GM Europe (GME). GME is managed by a European Strategy Board (ESB) which defines strategic objectives for European operations, allocates key resources and monitors performance of the individual markets as well as the integrated network of 14 vehicle plants and seven engine transmission plants located in 10 European countries.

  The sales forecast for the European region is matched to the production output from our integrated network. Each time the need arises to increase or decrease production output, the ESB assesses the cost and quality performance of the various facilities in addition to logistics issues. For example, it might be favourable to adjust production in Country X when the demand increase or decrease was in Country Y.

  To ensure that GME can manage forecast uncertainty within its sales mix (eg demand changes from large to small cars), while keeping all plant highly utilised, GME has complete flexibility "chaining" throughout Europe. This means that for each carline, one plant can build more than one model and the exposure of any single plant to the effects of large demand swings are minimised. It also means that in times of surplus production capability, GME has the ability to re-allocate production based on profitability and quality criteria.

  Clearly, therefore, Vauxhall needs to demonstrate competitiveness against sister operations in Europe when vying for new manufacturing contracts. GME's manufacturing decisions are strongly influenced by the amount it costs to produce a vehicle in a certain country, the quality of the product made and the reliability of monthly production schedules.

  However, when competing with sister operations and competitors based in Europe, Vauxhall has the added cost burden arising from currency transactions. Given that two-thirds of the value of component parts are drawn from "euroland" countries UK entry into EMU would make such cost savings a straight saving for the company.

  More widely, we believe that similar problems will influence many other organisations when it comes to making inward investment decisions in the UK. Entry into the EMU provides for planning stability and can eliminate some very significant transaction costs. Moreover, the eurozone will also provide them with greater access to larger financial markets and this will mean lower interest rates and consequently lower costs for building infrastructure. Britain remaining outside EMU for the longer term adds an unwelcome risk.

British competitiveness

  The problems being faced by British manufacturing as a result of the weak euro have been very well documented. Certainly, Vauxhall would share many of these concerns. However, our most recent analysis suggests that these problems are likely to recede given our belief that the economic fundamentals would argue in favour of a strengthening of the euro and that a correction is overdue.

  We believe that the weak euro is currently due to three factors. Firstly, there is a large level of capital outflow from the eurozone countries especially to America (where the economy has experienced exceptionally high growth in recent years). Secondly, there is the suspicion that the growth within the eurozone is due to cyclical features. Finally, there has been a failure on the part of the currency speculators to recognise that the European Central Bank has, in effect, two targets; the inflationary target is well-known although its efforts to keep an eye on what is effectively a money supply target is, we feel, often neglected.

  However, we believe that these factors are likely to become more positive in the short to medium term.

Vauxhall competitiveness

  Given the current low level of the euro, it would be easy for Vauxhall to make quick and easy savings by switching to European suppliers, who perhaps provide for our sister operations in Europe. However, at Vauxhall we have sought to take a longer-term view in the belief that the euro will eventually rise. We are working in conjunction with our suppliers to drive necessary real cost reductions. In this manner, Vauxhall has been able to partially offset the negative impact of a weak euro without re-sourcing current business outside of the UK.

  Other examples of our drive towards competitiveness and increased productivity can be seen in the revolutionary pay deal we struck in 1998 with our employees. This deal linked wage levels to the level of the Deutschmark and helped to ensure that Vauxhall was not seen by GME as an uneconomic proposition. Such examples of maximising productivity along with the flexibility and skills of our workforce can tip the balance in our favour despite the level of the euro.

  This was demonstrated last month when we were able to announce confirmation that we had secured a £189 million investment by GME in our manufacturing resource. £32 million will be invested in our Vectra car plant for efficiency and productivity gains, and our sister plant, IBC Vehicles, will invest £130 million to become a dedicated commercial vehicle plant to produce a new medium van range for Vauxhall, Opel and Renault. In Ellesmere Port where the Astra, Astra Van and the V6 Engines are already produced, Vauxhall will invest a further £27 million to transfer production of the Frontera recreational vehicle from IBC Vehicles where it is currently produced.

  GME's recognition of the competitive opportunities that Vauxhall and the UK can provide was further underlined last month with the opening of a £5 million engineering centre of excellence at Millbrook in Bedfordshire. The Centre is home to more than 70 international employees from diverse areas including world-wide purchasing, after sales and vehicle product and process engineering. It is envisaged that the centre will make significant contributions to the engineering of future light commercial and recreational vehicles for sale in the international markets.

Skills

  The new engineering centre represents the first time in 15 years that Vauxhall is investing directly in the UK engineering and, certainly, Vauxhall would like to see increased efforts in other areas—including by Government—to encourage a rise in the science and engineering skills base. This is a prerequisite to secure a strong and successful UK automotive future, which has a vibrant design and manufacturing foundation.

  As holders of Investors in People Vauxhall devotes a huge amount of training time to development programmes—in Luton plant last year over 18,000 hours of training were undertaken. In partnership with local education providers, we run apprentice schemes for 58 engineering apprentices at the manufacturing plants and our Vauxhall College recruits 200 apprentices a year as part of a retailer training programme.

  We will watch with interest the emergence of the Learning and Skills Councils and are keen to work with them to ensure school and college leavers have the requisite skills we need for our business.

Helping the supply chain

  As a company, Vauxhall can be more competitive by increasing the efficiencies of its systems and processes and by driving efficiencies in its supply base. As mentioned earlier, Vauxhall has taken a collaborative approach with suppliers, utilising internal and industry tools to help drive real supplier cost reductions.

  One industry tool used heavily by Vauxhall is the SMMT's Industry Forum supplier productivity and cost improvement workshops. Industry Forum has the backing of the Department of Trade and Industry and is a collaboration of vehicle manufacturers and component suppliers. Despite the effectiveness and demonstrated benefits gained from Industry Forum workshops, the UK supply base has been slow to make usage of these relatively low cost workshops. To help encourage UK suppliers to make immediate use of the workshops, Vauxhall has been co-funding the workshops for selected suppliers.

  Vauxhall has also conducted several on-site supplier workshops utilising its own supplier development engineers to help improve UK supplier competitiveness. Additionally, our Luton Manufacturing plant has conducted multiple lean manufacturing workshops for suppliers to help train the suppliers' workforce in lean principles.

  More widely, and as part of GME, Vauxhall has sought to embrace the challenges and opportunities which e-commerce provides in helping to minimise costs and improve working practices. One such initiative is GM SupplyPower, through which our suppliers will have 24 hour access to the important information they require to assist their planning processes. This includes information on, for example, shipping status and engineering specifications or allowing registered suppliers to check their own payment schedules and their quality ratings.

  Another e-GM initiative is Trade Exchange that is targeted to help our 30,000 suppliers and retailers to take advantage of General Motors' global purchasing network. In effect, this provides a "virtual market place", allowing registered suppliers and global buyers to come together and browse parts and catalogues from across the world and reduce their costs for the procurement process.

Relationship with Government and policy issues

  Despite the difficult trading, as has been outlined above, Vauxhall has sought to change or influence practices (of which it is able) to ensure that the Company continues to have a competitive advantage.

  We have partially offset the downside of the strong euro through productivity gains and the advantages that a skilled and flexible British workforce can bring to the Company.

  We work very closely with the Automotive Directorate at the Department of Trade and Industry and feel confident that the officials there are very well briefed on the issues facing the industry. Indeed, the UK industry is fortunate compared to other European member states in that the Industry Department has a section specifically looking after the automotive sector. As has already been stated above, there are other issues facing the car industry in terms of environmental and fiscal measures which affect our car design and car ownership costs which inevitably have an impact on our business and we are working with DETR and HM Treasury to ensure that they understand the total context of the market within which we are operating.

  The other government bodies with whom we have a developing relationship is with the new Regional Development Agencies. We are working with them on regional economic development issues such as support for relocation packages and training assistance for automotive suppliers.

  More widely, we must also look to overall direction in which future transport policy should move. We commend the moves towards a more integrated future transport system. However, we believe the sustainable future should be one in which the car must play a part, but one too in which car use is regarded as being responsibly used and one where there is no unjust penalisation.

  Consequently, in the present debate about charging for parking and congestion, for example, Vauxhall would not be opposed to seeing the (appropriate) introduction of the congestion charges (since it does counteract social and health problems). However, we would regard parking charges as an unnecessary burden on the private motorist and on the competitiveness of businesses. There is no need for both measures and, so long as cars are used responsibly, it should not be penalised.

  We also feel that the automotive industry should not be singled out unjustly for ill-considered punitive measures. The provisions of the End of Life Directive are one such example of this. Manufacturers have embraced their social responsibilities and are striving to achieve ever more recyclable vehicles and have agreed to take on the costs of disposal. However, implementing these measures retrospectively creates a dangerous precedent and unjustly imposes significant financial burdens on manufacturers particularly those based in the UK who have a higher share of the older car parc.

  We would like to see a move towards a Government policy wherein manufacturers are encouraged to build where they sell, and where the right conditions and marketplace exists to support the industry and that the engineering and science skills base is promoted to ensure future success. British automotive manufacturing can be a highly skilled and world-class industry that deserves full support.

23 June 2000


 
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