Memorandum submitted by Vauxhall Motors
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.
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
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.
The euro and Vauxhall's manufacturing and scheduling
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
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.
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
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.
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.
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 areasincluding by Governmentto
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 programmesin
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