Select Committee on Trade and Industry Minutes of Evidence


Examination of Witness (Questions 160 - 179)

TUESDAY 27 JUNE 2000

MR TOD EVANS

  160. Thank you for that; but, even taking the derivative, presumably the derivative is something which is new and moving forward, do you think that the CBI, UK manufacturing industry and others are making enough noise, making it sufficiently clear to Government, to others, that the relationship of sterling to the euro, if it continues, is going to do long-term damage to the UK manufacturing base?  (Mr Evans) We are into the realms of political messages now. All I can do is point to the facts, and in 1995 the exchange rate between the pound and the French franc was 7.3; a month ago it hit 11.3. That is a 58 per cent turn. When you are dealing with that level of change, we are in a situation where we are part of the EEC and yet are not yet committed to monetary union, therefore we are not enjoying the full advantages of belonging to the EEC, from a purely manufacturing perspective. And, therefore, in the UK, we have to operate in understanding that we have the other variable that is always floating around, and maybe that would be at times to our advantage, and maybe at other times to our disadvantage.

  161. I do not want to rattle on. I do not think it is a political message, I think it is a question that, if UK industry, in some way, is being damaged, if UK industry does not speak up for itself, why should anyone else speak up for it, and that one is in danger of having policies being determined with part of the equation missing. And if the relationship of the euro to sterling is an increasingly important component, if UK manufacturing does not make that clear then it cannot be surprised if Government and Parliament, and indeed the general public, do not hear it?  (Mr Evans) Yes. I think perhaps the way to look at it, as far as PSA is concerned, we are a global car manufacturer, we make cars in South America as well as Spain and France and the UK, and there are many investment opportunities for us, in terms of future capacity. And, therefore, I do not think there is anybody who is going around saying, "We must invest more in Spain," or in France, or in the UK, or South America, the decision will be made on the issues that prevail at the time, which are to do with certainly the flexibility of the workforce, certainly the quality that they produce, certainly the logistics costs, and the other factor will be whether we have to deal with a variable currency situation between our principal markets. And, as long as that fourth factor prevails, it will be an added complication that will have to be managed; but it is not advantageous.

Mr Morgan

  162. Can I just put a supplementary; leaving aside the euro, and trying to tie together three that you have talked about. You are getting at least 50 per cent of your components from the Continent, and that is increasing for your new model, I hear what you are saying about that is not necessarily something you have got control over. You are exporting two-thirds of your production. You have talked about high transport charges across the Channel. So, basically, you are shipping lots of metal and plastic into the country, sticking it together and then shipping it out again, with high costs in each direction. Is that a sustainable position, in the long term?  (Mr Evans) We have got to make our cars in factories in Europe, and the UK has advantages in terms of the flexibility of its workforce, and you have danced around that subject, I think you know what I mean by the flexibility of the workforce; the availability, particularly in the Midlands, of a trained workforce is an attractive element for us. And I think that, because of the importance of the UK market, from a commercial point of view, we want to stay as a manufacturer of cars in the UK; that is the principle. However, when we come to have to make major new investments, there will be many other opportunities and they will have to be looked at in that sense. So I cannot really give you a nice clear picture about how the UK will fare in that situation. But, certainly, I have pointed out to you that, in terms of planning permission, in terms of logistics costs, and in terms of currency variabilities, those are three negatives, at the moment, in terms of the UK Plc putting up its hand and saying, "We want investment, instead of" whichever other country might be bidding.

Chairman

  163. One last point. We have been banging the drum for electronic commerce, and other things like that. Will you be taking part in electronic tendering for components?  (Mr Evans) Yes. It is a specialised area, handled by our purchasing organisation, Sogidac, in France, and there have been three press announcements by the Group that they are developing e-commerce supplier relationships on a European scale, in the way that has been widely reported that General Motors and Ford have pioneered in the North American market. These kinds of activities are here to stay, and certainly we are in the forefront of that, yes.

Mr Butterfill

  164. Where do you source the 206 engines at the moment?  (Mr Evans) From France.

  165. And is there any UK content in those engines?  (Mr Evans) I could not tell you whether there would be piston rings, or con-rods, that happened to come from the UK, I do not know.

  166. But the probability is that they do not contain very much UK content?  (Mr Evans) That is a fair probability.

  167. And where do you see the future, in outsourcing engines and powertrains, generally?  (Mr Evans) We are not, as a Group, enthusiasts for outsourcing, in, I think, the way you describe it. We are enthusiasts for common development with other manufacturers, where major investment is required. We and Ford signed an agreement, last year, to develop a new range of both small and large high-speed diesel engines. We have had common agreements with both Fiat and Renault that have endured over many years, where we produce common components that are then used by different parts of our organisations. And we, as a philosophy, believe, as a Group, that the future is not acquisition and merger but the future is one of greater trading partnerships with other manufacturers around the world. So that kind of trend, for us, will continue, of joint investigation in common projects.

  168. And is the trend towards greater emphasis on diesel one which is likely to continue; you are about 50 per cent diesel at the moment, are you not?  (Mr Evans) I am delighted you give me the opportunity of banging the drum for diesel; yes. Certainly, I am delighted to see that the UK market has at last stabilised at 13.6 per cent of total cars sold being diesel. But it is interesting that I attended a DTI/DETR seminar, the two Departments had got together to develop this seminar, on the future of fuels and the future of engines, in terms of vehicles, and there was a great deal of debate about fuel cells versus dual-fuel vehicles versus LPG versus natural gas, hydrogen, etc. And it did allow us the opportunity, in that discussion group, to reflect on what the role of modern diesel was, in terms of its improved characteristics, power, torque and cleanliness of emissions, and to observe that other markets in Europe seem to favour diesel. And maybe we are sending out mixed signals, with our fiscal policy on diesels, and maybe we need to decide and send out a consistent, strong signal about which way we think this market should develop.

  169. It is not very surprising, is it, that diesel is less popular here than it is, say, in France when the cost of diesel here is about double what it is in France?  (Mr Evans) The cost of diesel is a lot cheaper than petrol in France, although it is gradually increasing. I do not think that is the argument. I think the argument is that diesel should not have a penalty, and, at the moment, with the proposed treatment of VED and the proposed treatment of `benefit in kind' taxation, based on CO2 emissions, that was a laudable objective, but then you introduce a penalty for diesel. So, on the one hand, you are saying it is far more efficient, in terms of lower CO2 emissions, so it should attract fewer attacks; then you say, "But, hang on, it's dirty, so we'd better stick a penalty on." And I just think that confusion needs to be ironed out.

  170. You do not think the particulate problem is one that needs to be looked at as well?  (Mr Evans) We, as a Group, have looked at that very carefully, and pioneered and introduced a patented particulate trap, which eliminates the last difficulty that people perceive diesel has. And, therefore, as I hope to demonstrate to Treasury officials shortly, by holding a silk handkerchief over the exhaust pipe of a particulate trap to vehicle, we can show that we have made great advances.

  Mr Butterfill: I have given you quite an opportunity, have I not.

  Chairman: Is that a technical message or a political message?

Mr Butterfill

  171. Can I ask just one more question. Peugeot has involved itself in the production of engines for motor racing, and has been successful in that; we, in the UK, have probably more successful industries in that than almost anybody else. Is there any trade-off down from that into normal car manufacture, or is it a myth?  (Mr Evans) There is a trade-off, but it is a myth to believe it is a cost-efficient trade-off.

  172. You do not want to expand on that; that is just a Delphic answer?  (Mr Evans) We can all conjure up the amounts of monies that are invested in Formula One, and the main reason for investing huge monies in Formula One is commercial. It is the one sport which is a world sport and televised on a world scale, and, therefore, if you can put your brand into a winning imagery, on a world scale, it is worth spending a lot of money on it. But what I am saying is, if you want to measure that investment in terms of the technological return you get then I think it would be very difficult to justify.

Mr Chope

  173. Peugeot/Citroën is conspicuous by its absence in not having any production of leisure vehicles or vans in this country. Do you see any prospect of that being changed?  (Mr Evans) Certainly, the term `leisure vehicle' is very broad; we hope that most people enjoy leisure in our cars. Did you have a particular reference in mind?

  174. Obviously, I think some people might say, all-terrain vehicles are leisure vehicles?  (Mr Evans) Four-wheel drive vehicles, yes; that is not a platform that at the moment is within the Group, and is one that is ripe for a partnership with another manufacturer.

  175. And, because of the skills which we have developed in this country, in these areas, would you think of the UK as a possible place for developing such a product?  (Mr Evans) It could be.

  176. And, at the moment, most of your R&D is outside the UK, in fact, almost exclusively outside the UK?  (Mr Evans) It is, yes.

  177. And do you see any prospect of being able to change that?  (Mr Evans) I think that, first of all, you have to have strong manufacturing, and once you have got strong manufacturing then you can begin to attract the research and development that comes with it. And we at Peugeot have a successful manufacturing business, and if that can be sustained it is quite possible in the future that we can bring with it engineering and design activities here, to match that manufacturing investment. There is nothing that is announceable at this time.

  178. But there is a real prospect, you think, of getting some R&D here?  (Mr Evans) I think there are too many uncertainties, in terms of the progression in terms of UK manufacture at the moment, and we have got to get those uncertainties behind us before we can begin to talk actively about such things.

  179. Can I just ask you a little bit more about your logistics costs. Are you talking about the costs of actual transport across the Channel, or are you talking about the costs in terms of congestion because of the delays in getting vehicles to and from the Channel ports, or the costs of the additional tax on diesel, and so on, in this country?  (Mr Evans) No, I am just talking about the cost of shipping across the Channel.


 
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