SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS
(a) Context and debate
It is over a quarter of a
century since the UK vehicle industry faced a similar sense of
crisis. The UK vehicle manufacturing industry is seen by some
as in the midst of a crisis which could lead to the meltdown of
a significant part of the UK's manufacturing base. Others emphasise
the good news, which is rarely given the same attention. A select
committee cannot usefully or properly comment on the prospects
of large publicly quoted companies. What we can do is to set out
what we have been told and try to present a balanced view of the
current situation, and some pointers to future developments. In
view of the great interest in the House in the subject, an early
debate in the House on UK vehicle manufacturing would be welcome
(paragraphs 5, 8 and 9).
(b) Cycle of models
The number of vehicle manufacturers
in the UK and the number of models being made means that every
year the future of one or two UK-manufactured models, and by extension
that of the manufacturing plants where they are assembled, is
called into question. The outcome of this cycle of decision-making
is of course of crucial importance to the whole industry and to
those working in it. While the individual decisions are indeed
affected by the prevailing economic and fiscal climate, including
exchange rates, the regular cycle of decisions on the place of
assembly of new models is the normal practice in the industry.
We trust that the significance of this cycle is fully appreciated
by all concerned, including those responsible for these issues
within Government (paragraphs 68 and 69).
(c) Overcapacity and losses
Vehicle manufacturers are
either losing money on their European and UK operations or are
making a very small return on their investments. Most car manufacturers
are feeling the cold winds of low or negative returns on assets
and are under pressure from unhappy shareholders. There is generally
said to be substantial overcapacity in global, European and UK
vehicle manufacturing plants. In the past, overcapacity
as a result of excessively optimistic sales forecasts could be
tolerated. Rightly or wrongly, however, the universal perception
of overcapacity combined with the disappointing financial returns
of many companies in the recent past, reflected in their share
value, is now producing a worldwide pattern of plant closure,
reduction in the number of models produced and reductions in the
number of employees (paragraphs 70-72).
(d) Globalisation and
the UK
The vital decisions affecting
the future of UK vehicle manufacturing and vehicle component plants
are taken at a European or global level, and generally not in
the UK. As the European vehicle industry is increasingly centred
elsewhere in Europe, the UK is likely to suffer from decisions
taken there, sometimes on other than purely economic grounds.
Global companies have choices which purely national companies
do not. The emergence of global producers has [also] extended
the possibility of production of vehicles and components outside
the traditional markets for cars, particularly in the new economies
of central and eastern Europe, in Turkey and in the Far East (paragraphs
73-76).
(e) Core business
The trend towards concentration
on core competences challenges the future of all non-assembly
operations carried out by the manufacturers, and is likely to
lead to difficulties for some of the UK plants thus cast adrift.
It is important that the Department is not taken by surprise by
such developments (paragraph 82).
(f) Flexibility and UK single-model plants
Dagenham and Luton were single-model
plants. It is a matter of some concern that a number of the remaining
UK car assembly plants are also single-model plants, notably Ryton,
Cowley and Ellesmere Port (paragraph 85).
(g) New automotive technologies
and R & D
We detect in the industry
a fundamental uncertainty as to the medium term future of its
technology. 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. There would in our view be
benefit in Government and industry exploring ways of ensuring
that the UK vehicle manufacturing industry is in the best possible
position to benefit from the exploitation of new automotive technologies.
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 (paragraphs
79, 110 and 113).
(h) Workforce contribution
It must not be forgotten
by those who own and manage the industry that a large measure
of the success of the industry over the past decade should be
attributed to its workforce. They are now entitled to some return
for their efforts and their loyalty (paragraph 86).
(i) Labour law
Our attention was drawn by
all the trades unions representing the workforce in the industry
to the alleged ease with which employers can shed surplus labour
in the UK, in comparison with the situation elsewhere in the EU.
The allegations made to us, not only in this inquiry but also
in relation to the UK steel industry as well, that British workers
are losing their jobs because it is easier to sack them than their
European counterparts is sufficiently grave to justify the devotion
of some time and effort to examining it. We had already been minded
to recommend a general review of employment legislation with a
view to identifying those elements of other European systems of
employment protection and of the proposed EU directive which could
and should be extended to the UK (paragraphs 87, 91 and 94).
(j) Review of labour legislation
We have to sound a note of
caution about the proposed terms of reference of the review announced
on 13 December 2000 and again on 18 January 2001. The justifiable
criticism over both the Dagenham and Luton closures and the BMW
decision on Longbridge was that the workforce were given no opportunity
to comment on the proposals being developed and to come up with
alternatives before final decisions were made and announced. There
is evidence that viable alternative options overlooked or summarily
dismissed by management can come out of such consultation. Prior
consultation can make good management sense. The proposed review
must explicitly address this point. It has to go beyond "fine-tuning"
of the law and practice of redundancy if it is to carry any credibility.
Nothing must be ruled out, including primary legislation. The
review must also be conducted transparently and swiftly. We recommend
early publication of a date for the conclusion of the review.
Subject to those observations, it is in our view a welcome development,
although too late to save jobs recently lost in the car industry
(paragraph 95).
(k) Company law
This sacrifice of a
car plant by a multinational intent on improving its short term
profitability does plainly raise the question of to whom the directors
of public companies such as General Motors should owe their duties.
The lessons of this decision, and of Ford's very similar decision,
must be fed into the company law review process, to see how changes
in the legal duties of directors might have lead to a different
outcome (paragraph 49).
(m) Workforce skills
The industry can only survive
if the skilled personnel are there to sustain it. 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 (paragraph 116).
(n) Euro
The vehicle industry illustrates
the arguments for and against UK membership of the euro, particularly
because of the global alternatives open to the assemblers and
to the major component manufacturers, and the high proportion
of vehicles which are traded in intra-European trade (paragraph
97).
(o) Components industry
The continuing presence of
vehicle assembly operations in the UK is a crucial condition for
the survival of the UK component industry. From our discussions
and from evidence presented to us, it is indeed evident that the
UK content of vehicles assembled in the UK has fallen, is falling
and is likely to fall further, almost entirely as a result of
the weakness of the euro. Those in an advanced stage of planning
for new models or who have recently introduced such models have
shifted towards sourcing from elsewhere in the eurozone or outside
it. The danger with this trend is that it is not readily
reversible, even if and when the euro strengthens against sterling
or if the UK were to join the euro in due course. The loss of
component manufacturing capacity cannot always be replaced, in
particular in small firms with insufficient other markets for
their products (paragraphs 99 and 104).
(p) Engines and powertrain
There would be advantage
in seeking to attract more engine and powertrain manufacture to
the UK. 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 (paragraph 107).
(q) Diesel
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 (paragraph 109).
(r) Logistics
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 (paragraph 117).
(s) Rail
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
(paragraph 118).
(t) Government policies
It is not our view that the
UK vehicle industry has any complaint of much substance against
the Government's policies. 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 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 (paragraph 121).
(u) Consumers
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. 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 (paragraph 123).
(v) Luton: choice of plant
- It does seem to us an anomaly that, in the absence
of simple information [on profitability at plant level] being
available to management, unprofitable plants may be retained at
the expense of profitable plants.
- In broad terms, it would seem that the weakness
of the euro against sterling played no significant role in this
decision.
- If it is indeed intended to produce as many as
160,000 new Vectras at a flex plant, it calls into question the
rationale given for the closure of Luton.
Luton is in effect paying
the price of GME's pessimistic view of the sales prospects on
the continent of the new Opel Vectra. Luton was the plant producing
the wrong model at the wrong time. It was the only way General
Motors Europe could take out a significant amount of capacity
in the short-term (paragraphs 41, 46, 47, 52, 53).
(w) Luton: separation terms
In the absence of comparative
figures we are unable to confirm that the [separation] terms are
comparable to those to be offered to employees in a similar position
in Germany or Belgium. The employment laws in those countries
seem to offer workers' representatives a greater opportunity to
negotiate the terms of separation (paragraph 33).
(x) Luton: support
The complex network of national
and European funding should be flexible enough to ensure that
support is available when and where needed. If it is not, the
Government Office for the Region must ensure that any procedural
logjam is broken. We also expect the partnership to be as loud
as necessary in its call for sufficient funding. It is essential
that means be found to ensure that those who genuinely seek retraining
are not excessively financially disadvantaged as a result of that
retraining, compared with those who choose to remain in well-rewarded
employment at Vauxhall until the bitter end; and that those midway
to a recognised qualification are able to complete their courses.
We look to the Partnership to engage in dialogue with Vauxhall
on these matters of immediate practical importance to the workforce
(paragraphs 55 and 57).
(y) Ellesmere Port: successor to Astra
The threatened ending of
car production at Luton is bound to have some effect on the future
of Ellesmere Port, the principal remaining site of Vauxhall operations
in the UK. The future of the Ellesmere Port plant largely depends
on the successor to the Astra being assembled there, from 2003/2004
onwards. An undertaking that this would be the case was included
in the 1998 Agreement with the trades unions. The worthlessness
of such an undertaking is now all too apparent. GME may feel that
it is open to do to Ellesmere Port what they are proposing to
do to Luton, and that it will be easier to close Ellesmere Port
than comparable plants in Germany, should similar circumstances
arise for the Astra model in a few years time. A plant with only
one model, on the geographic edge of the European market, and
in a country whose labour laws make closure potentially easier
and cheaper than elsewhere in the EU, would obviously be vulnerable
to the "hawks" (paragraphs 39 and 40).
(z) Ellesmere Port: new Vectra
It is crucially important
that the DTI and the Government's representatives in Brussels
do all they can to ensure both a swift and a favourable decision
on the proposed RSA grant: and that the Government make every
effort to assist the eventual production of the new Vectra at
Ellesmere Port (paragraph 42).
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