Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 260 - 279)



  260. You think that is a real disadvantage for the UK, the position it is in now?
  (Mr Reilly) I do.

  261. Not having made a decision?
  (Mr Reilly) I do personally, yes. I have said that for quite a long time. There is evidence of other companies saying the same thing and in fact the country is potentially losing out. I would say though that is not a significant factor in this particular instance.

  262. But in 1998 the preference was indicated for Luton over Antwerp as the second plant for the new Vectra. Surely, when that decision was made two or three years ago, you made a decision on certain currency planning assumptions?
  (Mr Reilly) Yes, that is true, and if the volumes had stayed the same and the sales forecasts had stayed the same, then what we would be doing now is just regretting perhaps—not me personally—that decision because the pound is higher and therefore it would have been very difficult to make a profit. But that is not really the issue here. The issue here is the fact we have to take capacity out of that segment. It is the only way it can be done.

  263. What about the 1998 pay and conditions deal? I understand that was tied to a Deutschmark rate. Do you think you could have got more out of the workforce over the last three years or do you think they have been doing the best they can?
  (Mr Reilly) I think they were doing the best they could and the best we could. There is no question you can always improve and our costs have been impacted by a pound that is higher than we were hoping it would be. The rate we expected at that time was 2.70 Deutschmarks to the pound and it has been averaging nearer about 3.20, so clearly we have been penalised there in terms of profitability. But we have been able to offset some of that with good productivity improvements in the plant and I would say the plant has performed very well over the last two years.

  264. Presumably you understand how the workforce feels about this present decision, given there was this agreement two years ago. Obviously they are devastated by the decision taken on 12th December.
  (Mr Reilly) I absolutely understand their feelings, which is why when the decision was inevitable I went back to suggest at least two things which would mitigate that decision. We are still working on both of them which should at least offset some of the losses. But I entirely understand and the workforce, frankly, I do not think could have done anything more to have made the decision different. It is a dramatic market change and a profitability change, and that is what the agreement said. Unfortunately, there is never a guarantee in this world and so any agreement which gives an indication of what is intended, which it was in good faith, has a clause in it which says that if conditions change significantly we might have to re-visit it, and that is what has happened.

  265. Was there not a commitment to bring the Epsilon into Luton in that agreement?
  (Mr Reilly) Unless there were significant changes.


  266. Can I ask you about this so-called agreement because it seems it is an agreement which sticks unless anything goes wrong. There is no legal underpinning to it. Nobody can turn round and say to you, "You have reneged on this undertaking therefore I am taking you to court", would that be correct? Unless an agreement has a legal underpinning, is it really worth the paper it is written on?
  (Mr Warman) It is a labour agreement and as such does not have a legal base in law, but it is an agreement we entered into in good faith in the circumstances at the time.

  267. Harold Wilson used to say "Solomon Binding", whatever that meant. What I am saying is that the absence of legislative structure to which such agreements could be tied means that it is a statement of intent, albeit of the highest order and in the best of good faith, but it is not nevertheless enforceable at law.
  (Mr Warman) That is true of all labour agreements. It was an experiment and. . .

  268. But this is a fairly dramatic one because it was as a consequence of serious negotiation on both sides with concessions being made—the unions might say more on their side than on yours but either way concessions were made. At the end of the day what incentive is there for British workers to enter into any such agreement as this with you or any other employer in the future if there is no legal underpinning to it?
  (Mr Reilly) Because we both entered into it with the express desire of improving the likelihood of our continuing manufacture. That was the intent of the agreement and that is the intent of a similar agreement we have elsewhere and the agreements we have been able to live with.

  269. But the several agreements you have elsewhere, with respect, have a degree of legal underpinning which the ones in the UK are not required to have.
  (Mr Reilly) I am talking about similar agreements in the UK.

  270. Let us talk about Europe for the purposes of making this point. We are all agreed in the best of good faith the workers and management in GM and Vauxhall here came to an understanding, enshrined in that agreement, but at the end of the day you can choose to define what you consider to be the cataclysmic circumstances which enable you to walk away from it, but could you have done that in Germany?
  (Mr Reilly) Yes. I am not quite sure why you are suggesting that the reason this agreement is no good is because it does not have any legal underpinning. In my view, even if it did have legal underpinning we would still have argued we have had dramatic changes, and that is why the clause is in that agreement. Whether it has legal underpinning or not, that is why the clause is there. On that basis, we do not feel we have broken that agreement.

  271. Would you think it unreasonable for a cynic to say that the absence of such a legal underpinning in the UK makes it easier for you to renege on it or to step back from that undertaking than it is, say, in Germany, and that is the reason why you did not close down any plants in Germany whereas you are closing down a plant in the UK?
  (Mr Reilly) There is not an alternative plant to close down in Germany which could get this result, first of all. Secondly, a cynic could say that, yes, but you have to take a look at the whole labour law in and around in total, what obligations does it bring on both parties in Germany and do we want that. We operate in the conditions we operate in and I would emphasise we do not feel we are reneging on an agreement.

Mr Chope

  272. You say there was a time when the decision was inevitable. Can you give us a date for that?
  (Mr Reilly) The decision was actually finally agreed on Friday 8th—I think it is—of December.

  273. You said that following that you discussed some ideas for mitigation, and that was after 8th December?
  (Mr Reilly) No, the proposal was first put up earlier that week.

  274. Earlier that week?
  (Mr Reilly) Yes.

  275. When did you first discuss it with the Government?
  (Mr Reilly) We have regular meetings with the DTI and in fact only a month before that—sometime early in November—we had had a meeting with the Government and described the conditions and the fact that conditions were very difficult and there was over-capacity, and at that time we explained the plan we had to move people across from the Luton plant to IBC. So they were aware of the difficulties of the market place but they were not aware of this proposal. They were not aware of this proposal until just before it was announced.

  276. Was there anything you asked them to do prior to the proposal being announced? Anything to do to help or anything like that?
  (Mr Reilly) As I say, we constantly talk to them and where they can help, in areas such as improving training, improving general conditions in the business and understanding the business so that we are not looking at legislation which is likely to add more to our costs, then, yes, we did ask them, but there was nothing we specifically asked them to do.

  277. You were talking to the Government but you were not talking to the Joint Negotiating Committee?
  (Mr Reilly) We certainly were.

  278. But were you talking to them about the exceptionally adverse changes to the economic environment which were forcing a reconsideration of the plan which had been signed? Were you talking to them pursuant to clause 7 of the agreement signed in 1998?
  (Mr Reilly) No, we were not talking to them in those terms.

  279. When did you start talking to them in those terms?
  (Mr Reilly) We obviously are constantly talking to our Joint Negotiating Committee and, as I said, we were in the process of trying to take some action to offset the deteriorating conditions as of about 60 days before this final proposal came along. So these conditions were known about for some time.

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