Select Committee on Trade and Industry Third Report



105. The UK is a major centre of vehicle engine production, with the prospect of growth.

  • Ford's plans for Dagenham involve the creation of an enlarged facility for the production in due course of close to a million diesel engines a year. There are plans for a new engine to be produced there in a joint venture with Peugeot. Mr Ian McAllister described Dagenham as having "a unique competence in the manufacture of diesel engines".[139]

  • Ford are also expanding their Zetec petrol engine manufacturing operations at Bridgend in Wales, planning to produce 750,000 engines a year, predominantly for export to Ford plants elsewhere in Europe. We were told in May 2000 that there was also a good prospect of production at Bridgend of the new Divatec V6/V8 engines, leading to a further 400 jobs.[140] An announcement is expected shortly.

  • Vauxhall make over 120,000 V6 petrol engines a year at Ellesmere Port, around 85 per cent of which are exported for Omega cars and others in the GM Group, including Cadillac and Saab.[141] Assurances have been given that the ending of car production at Luton will not affect these operations.[142]

  • The Longbridge plant producing over 200,000 engines a year for MG Rover, and for some Land Rover vehicles, is likely to be sold by BMW as a going concern to MG Rover. It includes a new foundry.[143]

  • For its part, BMW is continuing with its investment in a new engine plant at Hams Hall, designed to produce in due course around 400,000 1.6 and 2 litre engines a year for the next generation of BMWs. Reports suggest that it is to start production this year as planned.

  • Toyota have a separate engine plant at Deeside, producing over 100,000 engines a year for the plant at Burnaston in Derbyshire, and from next year for their plant at Valenciennes in France.[144]

106. Engines are of course themselves assembled from several hundred component parts. We obtained from some manufacturers an indication, so far as possible, of UK content, which was generally around 50 per cent. In other words, non-UK sourcing of engine components is on a similar scale to sourcing of components generally.

107. There would be advantage in seeking to attract more engine and powertrain manufacture to the UK. The Institution of Mechanical Engineers told us that there were a number of mechanisms for incentivising the UK as a centre for powertrain technology and recommended that the UK should "stake a claim upon the possible expansion in powertrain technology".[145] The UK could be expected to provide a favourable market for engine component manufacturers. Building on the existing business, and on the UK's design and engineering strengths, we recommend an active policy of encouraging by a variety of means the development and production in the UK of engines and powertrain for UK-assembled vehicles and for export.


  108. Almost half of new vehicles in many other EU countries are diesel-powered, compared to around 15 per cent in the UK. Ford suggested that an increasing proportion of motor power would come from diesels.[146] Vauxhall told us that "diesel is an important growing sector of the market, particularly in Europe..." .[147] Peugeot referred to the sense that other markets in Europe seemed to favour diesel more than the UK.

109. In the course of our discussions, we have been made aware of the prevailing perception among vehicle manufacturers that the UK is prejudiced against diesel engines. Diesel in the UK has a reputation for poor performance and dirty emissions. That may well be changing. Filter systems eliminating particulates from exhausts are now common. Diesel has the advantage of producing less carbon dioxide (CO2) than petrol engines, and having lower average fuel consumption. There are of course many questions to be asked and answered. The recent controversy on motor fuel taxation, and the justification of differential tax cuts between fuels on environmental grounds, offer an opportunity for an objective re-examination of diesel. The UK vehicle manufacturing industry, which relies on exports to mainland Europe for its existence, must not be artificially constrained or influenced by outdated attitudes. As EU markets move increasingly towards diesel, and the US remains predominantly petrol-driven, it is important to ensure that UK-based engine manufacture is not squeezed between the two. We recommend that the departments concerned review the overall policy towards diesel engine use in cars in the light of objective study of modern diesel engine technology and its environmental effects.


110. The UK has in the past been in the forefront of automotive technology research and development. That is no longer the case.

  • Vauxhall has an engineering centre at the test centre at Millbrook, with 70 employees, to be the centre of expertise in light vans and recreational vehicles.[149].

  • Peugeot currently has no R&D presence in the UK.

  • The Japanese manufacturers have some local capability but rely predominantly on their domestic facilities.

The IME claimed that "There has been a significant decline in the "intellectual value" (R&D) being put into cars, vans, trucks and buses".[150] The fact that most companies assembling cars in the UK have their main engineering and development centres outside the UK does not help the industry.

111. Several witnesses emphasised the success of UK "design houses" offering independent facilities for use by assemblers and the larger component firms. The DTI told us that UK sales in the design engineering sector had almost doubled in the five years to 1999 and that there were a number of "acknowledged world leaders" in particular areas.[151] The SMMT referred to around 20 independent automotive design engineering businesses in the UK, with a turnover of around £1billion. They warned that British design engineering companies had to meet the challenge of European competitors.[152] The IME called for support for the "emerging trend of Design Houses".[153]

112. The UK's national automotive R&D programme, Foresight Vehicle, "aims to stimulate suppliers to develop and demonstrate market driven enabling technologies for future motor vehicles" and to "attract deep-rooted automotive R&D investment into the UK".[154] £12 million has been made available under the Foresight Vehicle LINK programme. The SMMT evidence also referred to the EPSRC Innovative Manufacturing Initiative Road transport sector programme. The SMMT stated that the total value of these R&D Link programmes stood at £80 million, over half from industry sources, and that "the initial tranche of public funding available for investment in these programmes is now almost exhausted".

113. There would seem to be two trends — away from research and development being carried out in the UK by the major manufacturers, but towards the emergence of successful independent companies offering expert bespoke services to more than one manufacturer, on a basis of strict confidentiality. These companies need assistance and understanding if the UK is to retain the expertise we have developed. Existing fiscal policies designed to increase spending on R&D go only some way to help. We recommend an independent review of the direction of effort in Government-sponsored or supported automotive R&D with a view to ensuring that it is more closely focused on those areas where the UK stands to gain the most from such input.


114. The industry can only survive if the skilled personnel are there to sustain it. The workforce of UK vehicle manufacturers is relatively old and predominantly male. The unions have called for a rejuvenation of the workforce.[155] Mr Pye of MSF told us that GKN in Birmingham had last year taken only 6 apprentices rather than the usual 40 or 50 people.[156] Even where there is a reasonably scaled apprenticeship programme, it is difficult to attract young workers into an industry sometimes — in our view inaccurately — presented as in decline.

115. A number of witnesses also referred to the difficulties in finding skilled labour. The SMMT told us that their members " have found it increasingly difficult in recent years to fill vacancies for professional engineers" and that they had as a result lost out to foreign competitors. The main complaint is about quality not quantity — "the lack of basic numeracy skills in graduate applicants". The SMMT called for engineering courses "to transfer a wider range of applicable skills and integrate work experience modules in the curriculum". Toyota referred to "a shortage of suitably trained engineers" in the UK. [157] The IME stated that "the calibre of individual who previously opted for a career in an engineering organisation is increasingly, opting to continue in further education...". The Royal Academy of Engineering claimed that there had been "a failure in attracting and retaining bright young people within the industry.[158] The Motorsport Industry Association referred to difficulties in recruiting "at the skills level".[159] The DTI referred to "at least 37 university centres of excellence covering every relevant automotive technology and skill" and to the UK's leadership in industrial and aesthetic design of vehicles through the Royal College of Art's unique course. While this may not produce wealth or employment on a massive scale, it offers the potential for the UK to take the lead in vehicle design and manufacture, adding value and confirming the UK as a base for manufacturing operations.

116. At the level of engineering skills, there are worrying signs of failure, not least as a result of the obstacles placed in the way of existing employees increasing their skills and so becoming able to use new technology. We recommend consideration of a link between training grants and incentives for investment in new technology, so that investment in skills attracts comparable public funding to investment in new technology.


117. Being on an island is not a help to UK vehicle — or indeed other — manufacturing. The costs of bringing in components from mainland Europe are thereby increased, as are the costs of distributing vehicles to the mainland. The more the unfavourable sterling:euro rate leads to sourcing elsewhere in the EU, the more salient avoidable logistic costs become. Commercial transport costs across or under the Channel are therefore a concern. It is our firm impression gained from evidence and from informal discussion that the greater concern is the unreliability of these transport links and their susceptibility to interruption as a result of strikes, blockades and so on.[160] Vehicle manufacturers rely on "just-in-time" delivery, rather than holding vast stores of components on site. An unexpected interruption of supply is therefore a serious threat to continued production. Recent interruptions have obliged some manufacturers to use airfreight to bring in components. The position of the UK as a desirable centre of vehicle assembly would be considerably enhanced by improvements to the reliability of cross-Channel transport links as well as by reductions in their costs, and by generally improved transport infrastructure.

118. We raised with those manufacturers with whom we held informal discussions the use of rail as against road. Vehicle manufacturers are major road transport users. A big plant has several hundred juggernaut deliveries a day. Those who had used rail in the past for inward deliveries or for shipping out completed vehicles no longer did so, citing the damage caused in the past to vehicles on the trains and other inconveniences. We saw at Longbridge in March the marshalling yards for body parts coming from Swindon, and heard of the plans which had been made to create a major depot for rail distribution of Rover and MG vehicles. Other plants have the potential for greater use of rail. Mr McAllister of Ford told the Greater London Authority that Dagenham suffered a penalty in comparison to some other European sites as a result of bad traffic congestion. The company was obliged to keep higher stock levels " because we cannot rely on the M25. We have to operate a " just in case " policy instead of a just in time manufacturing facility". We recommend that the SMMT examine with its member companies the obstacles in the way of greater use of rail transport, and seek in discussion with commercial rail freight interests to identify what could be done by all concerned to encourage greater use of rail freight in the automotive industry.

Role of Government

119. The Government gives in its memorandum to us some idea of what it is doing to assist the UK vehicle manufacturing industry.[161]

  • It has given Regional Selective Asistance (RSA) on a very substantial scale: £282 million over the past five years, for 222 projects, providing an estimated 14,700 new jobs and safeguarding a further 21,000 jobs.[162] These funds have gone to the major manufacturers and to SMEs in the automotive component chain. The figures do not include the £129 million offered to BMW for the new Rover to be built at Longbridge, a sum now committed to assistance in the wake of BMW's disposal of Rover, nor the £40 million offered to Toyota to assemble the new Micra at Washington rather than at Flins in France.

  • It provides funding for Research and Development (see paras above ).

  • It helps fund improvements to the component supplier base through the SMMT-Industry Forum, as one means of improving productivity so that the UK component industry can thrive in a globally competitive market.

  • As demonstrated by the objectives of the DTI's Vehicles Division,[163] the department seeks by close liaison to ensure that the industry's concerns — for example, on currency or on skills training — are recognised in Whitehall and Brussels, and where possible addressed.

120. The evidence we received from representative organisations, and the impression received from our informal discussions, suggest that many sections of the automotive industry feel neglected and even persecuted by Government. Among issues of concern were —

  • the impact of the climate change levy on the hundreds of smaller companies whose sites are not covered by the Integrated Pollution Prevention and Control (IPPC) Directive:[164]

  • aspects of the vehicle taxation system, to the degree that vehicle excise duty and company car tax rates have a potentially damaging effect on UK vehicle manufacture. For example the SMMT state that the penalty on diesel in vehicle taxation "impede(s) the development of cleanest diesel technology in the UK":[165]

  • the end of life vehicle (ELV) Directive as applied in the UK and so the proposal for workplace parking levies are both seen as bearing down unduly heavily on manufacturers:[166]

  • the recent orders made by the Secretary of State on arrangements for retail car pricing, following the Competition Commission inquiry and our own Report, were cited by some as indicating the Government's hostility towards the industry, although none have claimed that it affects decisions on where to assemble vehicles.

121. It is not our view that the UK vehicle industry has any complaint of much substance against the Government's policies. Indeed, it has enjoyed a level of publicly funded support which some other industries might justly envy. The environmental policies pursued, while on occasions perhaps producing perverse or unintended effects, bear equally on vehicles assembled here or abroad. The Government's policies create opportunities, particularly in the field of public transport. The industry may have been short of positive expressions of political support: as the Motorsport Industry Association put it, the Government needs to be seen to recognise the success of the industry.[167] On 28 November 2000 the Minister of Trade told the SMMT annual dinner that "This government is not an anti-car administration".[168] More such expressions of Ministerial interest and support, divorced from management of individual crises, would help. We recommend that DTI Ministers discuss with the Society of Motor Manufacturers and Traders and other trade bodies means of demonstrating the reality of Ministerial support for the UK vehicle industry, going beyond reactive commitment at moments of crisis.

122. There are limits under international and European laws and conventions to what even the most interventionist Government can do to assist a national vehicle industry. We set out above some of the actions the UK Government has taken or is taking which have an impact on the industry. It can respond to requests for assistance. It can use its good offices to seek alternatives to those presented. But it cannot throw money at a problem even if it wishes to. For example, Regional Selective Assistance funding for projects in the vehicle industry are now rigorously scrutinised by the European Commission, and have to be minutely justified. Nissan noted that the £40 million RSA had "swayed the balance" in the short term in its decision on the new Micra. Central Government is not a major purchaser of vehicles, and is bound by European and international rules on public procurement. These rules may indeed help the UK; we heard at Southampton, for example, of Ford Transit sales to several mainland European public authorities.

123. Consumers are not similarly constrained. There is no reason why individual consumers, including businesses, should not exercise their freedom to choose which vehicles to buy in such a way as to assist the UK car industry. One reason they do not do so at present is that advertising does not at present give any weight to UK assembly or UK content as a selling point. There would be advantage in consumers being aware that there is a UK-assembled car in almost every segment of the market, and that buying such a car is one way of supporting the national industry and of conveying to the companies concerned that the British public does wish to maintain an vehicle industry in the UK.

139  Qq 32, 57-8 Back

140  Qq 32, 47-62: Sunday Express, 5 Nov 00 Back

141  Q 114; Ev, p 16 Back

142  Qq 377-8 Back

143  HC 383, para 45 Back

144  Ev, p 104, para 2.2 Back

145  Ev, p 101 Back

146  Q 5 Back

147  Q 116 Back

148  Qq 5, 32, 79 Back

149  Ev, p 18; Q 120 Back

150  Ev, p 100 Back

151  Ev, p 95, 3 (b) Back

152  Ev, p 88, paras 78-83; Ev, p 74 Back

153  Ev, p 103; Ev, p 73 Back

154  ibid, p 98 Back

155  Qq 203, 207, 226-8 Back

156  Q 207 Back

157  Ev, p 96; see also Q 138 Back

158  Ev, p 91, para 3.4 Back

159  Ev, p 117, para 24 Back

160  Qq 130, 145-6; Qq 179-182 Back

161  Ev, pp 94-100 Back

162  ibid, p 100  Back

163  See HC 140 of 2000-01, Ev, pp 30-2 Back

164  Ev, p 81, paras 36-41: ibid, p 106, 3.3 . See 9th Report, Impact on Industry of the Proposed Climate Change Levy, HC 678 of 1998-99 Back

165  Ev, p 82, paras 42-50: ibid, pp 109-110 (ERF), Q 220 etc Back

166  Ev, pp 83-4, paras 51-59, Ev, p 106, 3.3 and 3.4 Back

167  Ev, p 108, para 26 (d); Q 145 Back

168  Press Notice P/2000/795 of 28 November 2000 Back

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