Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by the Society of Motor Manufacturers and Traders Ltd


  The motor industry in the UK is facing very serious challenges. The high value of Sterling has undermined competitiveness and a range of Government actions are likely to push the costs of operating in the UK higher. There is concern that the combination of these factors is undermining confidence in the UK and making it more difficult to secure new investment.

  The Trade and Industry Committee inquiry is focused on vehicle manufacturing in the UK. The SMMT's submission has, however, sought to represent the broader range of issues being faced throughout the automotive supply chain.

  The UK automotive industry is a very successful, key sector of the UK economy that operates within a highly competitive global market. The industry has a turnover of approximately £46 billion, which is equivalent to 5.5 per cent of Gross Domestic Product. Some 800,000 jobs were dependent on the industry in 1999 with 300,000 employees directly employed in the vehicle and component manufacturing and the aftermarket. UK motor industry exports totalled £20 billion in 1999, exceeding the export value of any other manufacturing sector in the UK.

  The UK has had an enviable record of attracting inward investment from major global companies in the automotive sector. In 1999, more than 60 projects in the UK motor industry were funded by inward investment. These investments created around 7,000 new jobs and safeguarded a further 12,000.

  The UK provides a strong operating base for vehicle and component manufacturers. It has a strong domestic market with 2.5 million new vehicle registrations per annum and provides a strategic entry point to the European Single Market. The UK has a long tradition of engineering excellence and innovation. These qualities allied to a flexible labour market and economic stability have made the UK an attractive base for the automotive sector.

  The UK motor industry recognises the need for further improvements in productivity to ensure that it remains internationally competitive. Industry has developed a number of initiatives through partnerships and industry-led programmes. The SMMT Industry Forum facilitates a world-unique collaboration between manufacturers and suppliers to improve competitiveness in the UK automotive supply chain. The success of Industry Forum has led to sustainable shop-floor improvements in participating companies and Government considers it a blueprint for industry as a whole.

  The appreciation of Sterling by 17 per cent against the Euro since its launch has undermined the competitiveness of the UK-based automotive industry. The high pound is forcing vehicle manufacturers to seek significant cost reductions from UK based suppliers or undertake significant shifts in sourcing strategies. A continuation of these trends will result in severe damage to employment in the UK supply chain.

  The SMMT believes that the Bank of England has overestimated the inflationary pressures in the economy. This has resulted in higher than necessary interest rates. It would like to see Government undertake more research into the impact of regulatory and technological change on the economy in order to gain more accurate forecasts of inflation guiding monetary policy in the UK.

  The climate change levy on the business use of energy will increase net energy costs in the automotive industry by 10 to 15 per cent without realising its maximum environmental impact. These cost increases will impact most heavily on SMEs in the supply chain already struggling to maintain competitiveness. The SMMT calls upon Government to broaden the qualifying criteria for eligibility for a negotiated agreement. This would encourage the greatest possible number of companies within the motor industry to commit themselves to challenging energy-saving targets.

  The SMMT is concerned that the environmental and economic impact of major changes to vehicle taxation in the UK has not been fully assessed by Government. The diesel penalty in both the new VED scheme and the company car tax regime is unfair and does not take into account progress made in modern engine technology. Arbitrary disruption to demand in key sectors of the new car and commercial vehicle markets can undermine confidence in the Government's approach to environmental objectives.

  The SMMT sees no clear economic and environmental rationale for the introduction of workplace parking levies. The levies are a tax on car ownership that will only increase the cost for businesses and displace workplace parking to nearby streets with no reduction in overall traffic and pollution levels. To tackle the issue of traffic congestion, road user charges are a more appropriate response.

  The End-of-Life Vehicles (ELV) Directive will have a significant effect on UK car manufacturers and importers. It imposes a total financial liability of some £4 billion on UK car producers by obliging them to take back and bear the cost of treatment for ELVs. The SMMT calls upon Government to co-operate closely with industry in devising an implementation strategy for the ELV Directive that provides for equitable burden sharing and does not put the UK automotive industry internationally at a competitive disadvantage.

  The lack of quality graduate engineers is a structural problem for the UK motor industry, which could diminish its competitiveness and attractiveness for foreign investment. Engineering courses need to transfer a wider range of applicable skills and integrate work experience modules into the curriculum to meet the needs and standards of the industry. The success of the SMMT Industry Forum is creating a stream of high quality engineers, but maintaining and increasing the numbers that are required in the manufacturing sector remains a challenge.


  1.  The Society of Motor Manufacturers and Traders (SMMT) is the main trade association for the motor industry. It represents 880 member companies in the motor vehicle and component manufacturing industry in the UK. The industry has a turnover of approximately £46 billion, which is equivalent to 5.5 per cent of Gross Domestic Product. Some 800,000 jobs were dependent on the industry in 1999, with 300,000 engaged directly in vehicle and manufacturing activities. In 1999 UK motor industry exports totalled £20 billion, greater than any other manufacturing sector and more than oil and aerospace.

  2.  The SMMT welcomes the Trade and Industry Committee's inquiry into vehicle manufacturing. The motor industry in the UK is facing very serious challenges. The high value of Sterling has undermined competitiveness and a range of Government actions are likely to push the costs of operating in the UK higher. There is concern that the combination of these is undermining confidence in the UK and making it more difficult to secure new investment.

  3.  The motor industry in the UK comprises a wide range of companies involved in a diverse range of activities. These include global vehicle and component manufacturers supported by a very large number of small and medium sized enterprises.

  4.  The automotive sector is exposed to intense global competition. There is increasing pressure on the industry to deliver ever more sophisticated products at lower prices. The vehicle manufacturers and many of the major component suppliers are large multi-national businesses operating production facilities across the world. They are continually seeking to improve their own productivity and reduce costs throughout the supply chain.

  5.  In its submission to the Trade and Industry Committee the SMMT has sought to highlight a range of specific concerns that are affecting the industry. It also demonstrates the actions being taken by the industry to improve productivity and compete more effectively in global markets. The SMMT is convinced that the UK continues to be an attractive base for the automotive industry, but that Government must do more to signal its support for the manufacturing sector.


  6.  In the fiercely competitive global automotive industry UK firms have taken a number of important steps to enhance productivity and ensure that they remain competitive. UK firms recognise the need to benchmark themselves against the best in the world and adopt principles of best practice and as a result, a number of initiatives have been developed through partnerships and industry led programmes, collaborative projects and further development in workforce practices.

SMMT Industry Forum

  7.  The SMMT Industry Forum was established to drive for and support the achievement of sustainable world leading competitiveness in the UK based vehicle and components industry. It was developed by SMMT jointly with the Department of Trade and Industry and launched in 1994 by Michael Heseltine (then President of the Board of Trade). The Forum is industry led, but works closely with the DTI, providing the basis for a long term strategy for sustainable competitiveness focused on high quality practical improvement activity. Vehicle manufacturers and component suppliers at different levels in the supply chain work together through Industry Forum to agree improvement activity for the UK automotive supplier base. In this respect, Industry Forum is a world unique collaboration amongst competitors.

  8.  The DTI White Paper on Competitiveness, published in 1998, highlights the SMMT Industry Forum as an example of a successful industry led partnership, which has raised the productivity of the sector through a series of shop floor improvements. Following its outstanding success, the DTI is currently using the SMMT Industry Forum as a role model for 10 new sectoral initiatives to transform manufacturing quality and productivity.

Manufacturing Process Improvement

  9.  The Forum's current main activity is the Process Improvement Master Class project, which was launched in 1997. This is targeted at improving single companies within the supply chain using expert engineers skilled in shop floor improvement activities. SMMT Industry Forum has developed a "common approach" to shop floor process improvement activities. SMMT Industry Forum is currently training 30 young British engineers recruited by the SMMT, together with secondees from the industry, in these techniques. An important feature of the project is the use of hard quantitative measures to assess the existing performance of a company's manufacturing processes. The measures have been distilled by Industry Forum from those used by the vehicle manufacturers and have been agreed for use in their own supply chains. Such measures help to target activity where it is most needed, provide a basis for monitoring improvements and over the longer term, ensure that improvements are sustained and developed further.

  10.  In addition to the Master Class, Industry Forum organises improvement activity in the supply chain. The aim is to eliminate "interface waste" between the companies by improving communication and working relationships along a supply chain. This is a shop floor activity in which different companies in a supply chain provide members of the work shop team. The teamwork is designed to improve working relationships and communication, and give companies an insight into the shop floor operations of suppliers and customers. The results are measured using the same hard quantitative manufacturing process measures of quality, cost and delivery performance as for the Master Class, together with a more subjective set of measures of partnership.


Average %
Best %
None right first time
Delivery schedule achievement
Overall equipment effectiveness
Value added per person
Space utilisation
People productivity
Stock turns

  These results show the typical manufacturing cell or line improvements achieved by those companies participating in Master Class activities. In addition to the achievements of initiatives such as SMMT Industry Forum, SMMT is also working to promote and support the adoption of global quality management standards and the achievement of Business Excellence throughout the industry.

Industry Measures to Improve Quality Standards

  11.  The rapid movement of the UK automotive industry towards globalisation has presented the industry with a number of challenges. In order to meet those challenges and remain competitive in the global market place, the industry has developed a series of measures aimed at raising product and process quality throughout the supply chain. The SMMT Quality Panel was established by the SMMT to promote, achieve and safeguard business excellence throughout the UK automotive industry. Having provided the basis for the original development of British Standard BS 5750, which subsequently became ISO 9001, the Quality Panel has a long history of leading in Quality Management Systems in the industry. Certification to ISO 9001/2, however, is only a first step on the ladder to Business Excellence required throughout the global industry.

  12.  The next step from ISO 9001/2 is the new global automotive specification ISO/TS 16949. It was published by the International Organisation for Standardisation (ISO) and the International Automotive Task Force (IATF) in March 1999. The IAFT is an ad hoc group of automotive manufacturers and their respective trade associations. It was formed to achieve harmonisation of supplier quality system requirements for the benefit of the automotive industry. SMMT is the UK representative to this group.

  13.  All original equipment manufacturers are encouraged to promote ISO/TS 16949 as a step beyond ISO 9001/2. Initial signs are that it will become a requirement for any company involved in supplying the automotive industry. SMMT aims to set up an Automotive Business Excellence Centre to assist the promotion and implementation of the quality standards. It will also co-ordinate and monitor the assessments and improvement support being provided.

  14.  The introduction of a global quality standard has introduced a common language for systems and achieved a reduction in multiple third party assessments. This in turn has freed up suppliers' resources for other activities. The global quality standard will contribute to an improvement in industry competitiveness as a result of improvements in product and process quality and the establishment of a common quality system throughout the supply chain. Success in implementation in the UK will also contribute to increased confidence for global sourcing from the UK industry.

  15.  Overall, the standard has also provided a benchmark for UK automotive suppliers, enabling them to better compete in the global marketplace. It must be recognised, however, that substantial efforts are needed for the whole UK supply base to achieve compliance with a standard which has detailed requirements, not only for manufacturing and product excellence, but also in areas such as continuous improvement, employee training and qualification and strategic business planning. The SMMT intends to lead in setting and achieving these required global standards.

Industry Improvements in Workforce practices

  16.  In order to remain globally competitive and safeguard jobs, UK based vehicle manufacturers and their workforces have worked together to introduce a number of flexible working practices and re-education schemes aimed at improving productivity and quality output. Some companies, for example, have avoided redundancies among the workforce by introducing flexible shift patterns which can cover production shortfall by allowing shorter hours when work is slack and longer hours when demand picks up. Other measures to meet the challenges faced by this highly competitive sector, currently operating under very difficult circumstances, have included changes in shift patterns and the introduction of a banked hours system. These are intended to reduce costs, increase flexibility and increase line up time.

  17.  The automotive industry has also taken a number of steps to improve the quality of education, training and development of the workforce. One such initiative is a new MSc in Sustainable Competitiveness which is to be launched at Liverpool John Moores University in September 2000. The taught Masters degree is aimed at companies in the automotive industry that are employing recent graduates and have middle and senior managers who would benefit from the learning and assist their company meet its aim to achieve sustainable competitiveness.

  18.  The Leeds Manufacturing Initiative is a public-private organisation set up to support the manufacturing sector in the city. Members of the Leeds Manufacturing Initiative include vehicle and component manufacturers and a significant number of second and third-tier suppliers. They collaborate inter alia in the areas of education, training and development. The Initiative is aimed at creating business opportunities and networks and attempts to promote a positive image of the manufacturing sector as it plays an important role for employment and wealth in Leeds and the surrounding region.

Foresight Vehicle and IMI Road Transport Sector R&D link programmes

  19.  Over the last five years, the Foresight Vehicle and Innovative Manufacturing Initiative (IMI) programmes have attracted the joint support of academic researchers and engineers in the industry to develop automotive product technology and manufacturing process know-how. A substantial R&D programme has been developed to address issues of congestion, pollution, energy use and road safety as well as UK competitiveness in design, manufacturing and market support.

  20.  The Foresight Vehicle programme was created to develop technology for road vehicles and promote Quality of Life and Wealth Creation in the UK. From this brief, a Steering Group created a programme to develop lighter and more fuel efficient vehicle bodies, new sources of motive power to reduce emissions and CO2, and telematics and communications technologies to combat congestion and increase safety. The Innovative Manufacturing Initiative is an EPSRC programme to develop and deploy new understanding of the business process. The Road Transport sector was launched in 1995 and has sponsored collaborative work in design, manufacturing and marketing operations.

  21.  Public funding for these programmes has been provided by DTI, EPSRC, DETR and the Highways Agency. The total value of the research projects supported by these programmes now stands at some £80 million, of which Industry has contributed some 56 per cent. Three hundred and ninety four separate organisations are involved in the programme, and the industrial and academic partners involved see the benefits of the programme, and are keen that it should continue. The initial tranche of public funding available for investment in these programmes is now almost exhausted.

Inward Investment in the UK Automotive Industry

  22.  In 1999, there were more than 60 inward investment projects into the UK automotive sector. These resulted in the creation of some 7,000 new jobs and safeguarded a further 12,000. The UK motor industry continues to attract major international manufacturers and suppliers as it is considered to be the most attractive country among all European locations for the production of cars. The UK automotive industry provides a strong operating base for vehicle and component manufacturers wanting to locate in Europe as the UK domestic market for new vehicles is large enough to provide a working foundation upon which to build export volume. The UK also offers the most effective way to gain entry to the European Single Market with efficient distribution from UK plants to Europe.

  23.  In addition, the UK offers component manufacturers the opportunity to serve a fast growing and particularly diverse vehicle manufacturing sector with luxury automobiles and a larger number of specialised small volume manufacturers than in any other European country. Many European companies have invested in the UK in order to supply components and services to the country's growing volume of vehicle production. Moreover, the UK has one of the longest traditions of engineering innovation and is home to a world leading technical support sector including internationally recognised laboratories, dedicated proving grounds, specialist consultancies and design engineering companies. The world's largest dedicated motor sport car design, development and manufacturing sector is also located in the UK.

  24.  Investment into the UK automotive industry is encouraged by the UK's pro business economy with low taxation and economic and political stability. The low inflation rate in the UK, relatively low labour costs and an accommodating industrial relations environment, a well-developed skills base and flexible labour markets also contribute to making the UK an attractive location for inward investment. In addition, Britain has a high quality and inexpensive utilities and telecommunications sector and Europe's largest financial services sector.

  25.  It is clear then, that in addition to measures to improve and sustain sector competitiveness, the long-term success of the UK automotive industry is dependent upon the continued economic stability of the UK and its position as the leading location for inward investment in Europe. The series of investments highlighted below demonstrate that the automotive industry has had the confidence to invest in the UK. This past record of success should not lead Government to underestimate the difficulties currently being faced by the automotive sector, nor the difficulty in securing new investment for the UK.

    —  General Motors has announced plans to invest around US$302 million in its UK manufacturing facilities. US$51 million will be spent at the Vauxhall Vectra car plant in Luton, for efficiency and productivity gains, while US$208 million will be invested in its sister plant, IBC Vehicles, turning it into a dedicated commercial vehicle plant to produce medium vans for Vauxhall, Opel and Renault.

    —  Honda announced plans in April this year to build the CR-V four wheel-drive model at its plant in Swindon. Production will start in June and is expected to reach 20,000 units by the end of the year. The plant is undergoing a US$200 million plus modernisation programme that will enable the plant to produce a wide range of models at very short notice.

    —  Ford's premier Automotive Group is investing in a new F-Type sports car to be manufactured by its UK subsidiary, Jaguar, based in the West Midlands.

    —  Ogihara Europe Ltd, the European arm of the Japanese Ogihara Corporation, has invested approximately US$16 million in the UK automotive industry with the opening of a new engineering centre, toolroom and production facility within its existing site at Telford. The new facility will create 50 skilled positions by the end of the year, rising to 100 within three years.

    —  TAG McLaren are to build the Mercedes-Benz Vision SLR at a £200 million headquarters being built for McLaren in Surrey. More than 250 jobs will be created.


The Impact of the Sterling Exchange Rate

26.  In increasingly competitive global markets currency fluctuations have a significant impact on the competitiveness of goods supplied from particular countries. The value of Sterling has risen by 6.5 per cent against the Euro since November 1999 and by 17 per cent since the Euro was launched in January 1999.

  The competitiveness of UK based automotive component suppliers has been undermined by the continued rise in the value of Sterling.

  27.  The industry has been under pressure for some time, with Sterling appreciating by more than 35 per cent since 1996, but it is only as supply contracts are renewed that the full impact becomes clear. In order to maintain competitiveness UK based vehicle manufacturers are carefully reviewing all their costs. They are seeking to secure cost reductions from their suppliers and/or looking to source more components from outside the UK.

  28.  Vehicle manufacturers have made long term commitments to production in the UK, but a significant shift in sourcing strategy will result in severe damage to employment in the UK supply chain.

  29.  The motor industry recognises that the Government has very limited scope for influencing exchange rates. The Bank of England's independence to set interest rates has been widely supported and the motor industry acknowledges the benefits of a stable, low inflation economy. There is, however, concern that the Bank's Monetary Policy Committee (MPC) may be overestimating the potential for inflation resulting in higher than necessary interest rates.

  30.  When the Government established the MPC and gave it the power to set interest rates, it set a target for underlining price inflation of 2.5 per cent. The target indicator is measured by retail price inflation minus mortgage interest repayments (RPIX). In may 2000 the RPIX fell to the lowest level since 1975 at 1.9 per cent and despite a small rise to 2 per cent in June, it has now been below the target rate for 14 successive months.

  31.  It is recognised that the relative strength of Sterling is a factor in subduing domestic inflation, but it is not the only one. It is the Government's policy to stimulate greater competition in the economy and encourage e-commerce. There should be little surprise then that competition in the retail sector and the rapid development of e-commerce is adding to the downward pressure on prices. This pattern is being repeated in the service sector where the privatised utilities are becoming subject to tighter regulation and more competition.

  32.  In recent reports the MPC concluded that retail price increases were subdued because of intense competition, productivity improvements and manufacturers operating on reduced margins. If these factors were reflective of structural changes in the economy it could reduce the MPC's forecast of inflation by up to 0.4 per cent. This would be sufficient to ensure that the inflation rate continued to significantly undershoot the target for the next two years.

  33.  Growth in productivity increases the supply potential of the economy allowing higher and faster rates of economic growth without adding to inflation. Productivity improvements are difficult to measure and the MPC prefers to take a cautious approach when forecasting future levels of inflation. They rely on the long run average increase in productivity of 2 per cent per annum.

  34.  In a recent speech the Secretary of State for Trade and Industry stated that productivity had improved by 5 per cent. This suggests that forecasts for the next two years based on long run productivity improvements might significantly underestimate the potential for non-inflationary growth, leading to unnecessarily high interest rates and the consequent artificial strengthening of the Sterling/Euro exchange rate.

  35.  The SMMT would like to see the Treasury and the Bank of England undertaking more research into the impact of regulatory and technological change on the economy. It is essential that forecasts of inflation more accurately reflect the changes affecting the economy.


  36.  In the 2000 Budget, the Chancellor restated Government plans to introduce a Climate Change Levy on the business use of energy from April 2001 as part of the UK's Climate Change Programme. The UK automotive industry fully recognises the importance of the climate change issue and has an on-going commitment to improve the environmental performance of its products and production processes. SMMT members are signatories to the voluntary agreement that the European automotive industry has entered into with the European Commission to reduce average new car CO2 emissions by 25 per cent between 1995 and 2008. This agreement provides for the largest single reduction of greenhouse gases in meeting Europe's Kyoto target.

  37.  SMMT shares the CBI's concern that the levy in its current design is a blunt instrument that is unlikely to realise its maximum environmental effectiveness and penalises UK manufacturing industry at a particularly challenging time of intense cost pressures and unfavourable exchange rates. The introduction of the climate change levy will result in substantial increases in production costs for the UK motor industry. Net energy costs are estimated to increase by 10 to 15 per cent for vehicle and component manufacturers as a result of the levy. For some SMMT member companies the levy would increase overall manufacturing costs by approximately 3 per cent. Larger manufacturing members could face net bills of up to £6 million from the levy, and most volume manufacturers will see net cost increases of £1 million unless they are able to obtain discounts under negotiated agreements with Government. Additional costs of this scale will be very difficult to accommodate, especially for small and medium-sized manufacturing companies and they are likely to seriously damage the competitiveness of the UK automotive sector.

  38.  Whilst the levy will be revenue neutral across the UK economy as a whole, the compensatory 0.3 per cent cut in employer's National Insurance Contributions (NICs) will be insufficient to offset the increased energy costs that the UK motor industry will face. The envisaged levy effectively offers a discount to labour intensive business activities at the expense of technology-intensive manufacturing industries. Many of our members have invested significantly in updating their production facilities by introducing highly efficient machinery to increase their competitiveness. The levy will unfairly penalise such moves and reduce their benefits.

  39.  Energy intensive industries in UK can obtain an 80 per cent discount on levy rates if a negotiated agreement can be reached with Government. The Chancellor has stated that only sites covered by the EU's Integrated Pollution Prevention and Control (IPPC) Directive, defined in England and Wales as sites with processes listed in Parts A1 and A2 of the Pollution Prevention and Control (PPC) Regulations, can enter a negotiated agreement. The SMMT along with many other sectors has repeatedly argued the economic and environmental case for broadening the qualifying criteria for climate change levy discounts. SMMT believes that the Government should be encouraging and enabling as many firms as possible to reduce their energy use and CO2 emissions.

  40.  The automobile industry is keen to enter such a negotiated agreement. Some member companies have sites with IPPC processes such as painting, bumper painting, dye casting, boilers and effluent treatment that qualify for a discount on the climate change levy. SMMT members estimate that these processes represent approximately 50 per cent of their total energy costs. However, a far greater number of our members have already voluntarily invested in cleaner systems and production processes that do not fall under the IPPC directive but have led to substantial increases in their energy efficiency. Many SMMT members also have environmental management systems like ISO 14001 which have energy efficiency targets in them. Despite their environmental benefits and international recognition none of these efforts are taken into account by the provision that only IPPC sites qualify for levy discounts. SMMT feels that this provision sends out contradicting signals and limits the environmental effectiveness of the levy as a whole.


  41.  If the climate change levy is to maximise its environmental impact, the Government has to broaden the qualifying criteria for eligibility for levy discounts. This step would encourage the greatest possible number of companies to commit themselves to challenging energy saving targets. The SMMT calls for an acknowledgement in the levy scheme of the cost-effective energy saving measures that its members have already put in place at non-IPPC sites. On behalf of member companies with IPPC processes, the SMMT is currently working to establish a negotiated agreement with Government to allow companies that can offer suitable energy reductions to obtain an 80 per cent discount when the levy comes into force. Companies interested in an SMMT led negotiated agreement include major manufacturers like Toyota, Nissan, Honda, BMW, Rover, Ford, Peugeot, Rolls Royce and Vauxhall. To prepare these negotiations, the SMMT is compiling historical and future energy consumption data from interested members.


  42.  In March, the Budget 2000 introduced significant changes in the taxation regime governing motor vehicles in the UK. The UK car industry welcomes some of the changes made by the Chancellor compared to Budget 1999, including the reduced VED rates for new cars and heavy trucks. However, the SMMT has reason to be concerned about a number of issues and unresolved aspects of the new vehicle taxation system.

Vehicle Excise Duty (VED)

  43.  The Chancellor announced the introduction of a revised VED system for new cars from 1 March 2001. The new VED regime establishes a system of graduated VED for new cars that places newly-registered cars in one of four bands according to the CO2 rating and fuel type of the vehicle. Existing cars will be taxed at a flat rate of £105 or £160 depending on their engine size. The reduced rate will apply to all existing cars with engines up to 1,200 cc, the higher rate to cars with engines above 1,200 cc.

  44.  The SMMT is not convinced that VED is an effective economic instrument for tackling environmental problems. It is a tax on the ownership and not the use of a vehicle. SMMT has consistently argued for a more simplified VED on a continuous rather than a banded scale. This would increase the transparency and effectiveness of the taxation system in guiding the purchasing behaviour of the customer.

  45.  The inclusion of a penalty of £10 on diesel fuel in the revised VED system will have an overall negative effect on the competitiveness of the UK industry and impede the development of a market for low emission diesel technologies. It fails to recognise the motor industry's investment in environmental R&D and the rapid pace at which diesel technology is developing. Cleanest diesel fuel/technology should therefore be exempt from the diesel supplement and benefit from a VED discount. In order to promote alternatively powered vehicles, the new VED regime needs to be based on a definition of clean fuel cars/technologies that can be adapted to technological progress. To ease the impact of higher prices for these alternatively powered cars, the SMMT would like to see increased discounts for alternative fuels/technology like gas only cars, hybrids (petrol/electric) And fuel call/hydrogen cars.

Company Car Tax

  46.  Company cars are an important market for SMMT members. Under the new regime announced in the Budget 2000 the tax charged on company cars will be based on a percentage of the car price graduated according to its carbon dioxide emissions from 6 April 2002. Employees who drive a company car will have to pay an income tax charge that builds up from 15 per cent of the car price for cars emitting 165 grams per kilometre (g/km) CO2. The charge increases in one per cent steps for every additional 5 g/km to a maximum charge of 35 per cent of the car price.

  47.  SMMT is disappointed that the Inland Revenue has failed to provide an economic and environmental assessment of the planned charges which could have a very significant impact on the market. With the start of the new system, the existing business mileage discounts will be abolished. Employees who have to use their company car intensively as part of their job will face substantial tax increases for no published reason. Perverse incentives at the upper end of the tax band will effectively encourage business drivers of so-called "status" cars that have a taxable value above the 35 per cent maximum charge to choose a model that emits even more.

  48.  Traffic related to "perk" cars is unlikely to decrease as companies are already adapting their benefit packages to the fiscal pressures on company car drivers. Recent years have seen an increase in flexible benefit schemes in which employers pay cash contributions towards sponsored employee car purchase schemes. The new company car tax regime also introduces a 3 per cent supplement for diesel cars. As in the reformed VED system for new cars, such a supplement constitutes an unjustifiable penalty for a rapidly evolving technology with great environmental potential. The SMMT would welcome the recognition of progress made in cleanest diesel technology in the fiscal measures taken by Government.

Commercial Vehicles (CVs)

  49.  SMMT welcomes the Chancellor's initiative to freeze and lower VED rates for commercial vehicles (CVs), after the significant rises in truck VED announced in last year's Budget. Despite these changes, British CVs continue to pay by far the highest VED rates in Europe. For example, a French 40 tonnes five-axle vehicle pays just £450 road tax, compared to £3,950 that the same vehicle incurs in the UK—a difference of £3,500. SMMT shares the concern of the Freight Transport Association that the legacy of ultra-high taxes on Vehicle Excise Duty and fuel duty in the UK has increased the competitive advantage of foreign lorries operating in the UK. It allowed foreign operators to make further inroads in the UK domestic market in 1999 to the detriment of UK based companies, since they could operate at far cheaper fuel duty and VED levels. In the second quarter of 1999, there was a 25 per cent increase in numbers of foreign trucks visiting the UK against the same quarter in 1998. At the same time the number of UK trucks operating on international business increased by just 6 per cent. The unfavourable tax climate for commercial vehicles in the UK increases the threat of relocation by UK based operators. The SMMT advises the Government to further remove distortions in the UK tax system for CVs that impede the international competitiveness of the UK haulage industry.


  50.  The UK motor industry remains concerned that the environmental and economic impact of major changes to vehicle taxation has not been fully assessed by government. The new VED and company car regime should not be used to merely increase the tax take from motorists. Revenues need to be fully hypothecated to transport improvements and the schemes closely monitored and assessed. The criteria for any such assessment still need to be clarified. The SMMT would like to see a correction of the remaining distortions in the UK system of vehicle taxation like the diesel penalty and high levies for heavy commercial vehicles. They impede the development of cleanest diesel technology in the UK and reduce the international competitiveness of the UK haulage industry.


  51.  The UK motor industry is committed to its efforts to make a positive and constructive contribution to the long-term transport and environmental objectives of the Government. The SMMT however, alongside the CBI, the EEF and others, opposes the introduction of a workplace parking levy which it regards as too punitive a measure when suitable alternative forms of transport are not in place. The policy is also misdirected as its taxes parking space rather than addressing the environmental impact of congestion through road use. It is doubtful whether the charges will have any impact on the behaviour of car users and their decision on how to travel to work. If levied at an annual rate, the incentive not to use the car is gone once the levy is paid. If applied on a daily basis, the levy would only displace workplace parking into commercial car parks and nearby streets with negative consequences for local communities and no demonstrable reduction in overall traffic and pollution levels. The workplace parking charges will only increase business costs for many companies at a time when manufacturing firms are already experiencing significant cost pressures.

  52.  The UK motor industry has approximately 3,500 UK sites, rising to 7,000 for the whole supply chain. A majority of these sites provide parking facilities for their employees and would be adversely affected if the charge were levied on individual businesses. Many of the larger sites operate rotating shift systems whereby a proportion of workers travel during off-peak hours and do not contribute to peak-time congestion. Moreover, levies on workplace parking space are highly inappropriate if no viable alternative, ie public transport facilities, is available or car usage constitutes a necessary part of an employee's job. The proposed workplace parking levy does not take these factors into account and penalises manufacturing companies that run shift systems.

  53.  In addition, the policy fails to acknowledge efforts by employers who set up other facilities such as park and ride schemes or charge for work space parking, but will face the same levy penalty regardless. A case study published by the EEF illustrates the extra cost that a company with 1,880 parking spaces would incur despite its extensive co-operation with the city council to develop a park and ride scheme and implement car sharing schemes. The workplace parking charge would make no account of these efforts to reduce work-related traffic. If the levy was charged at £250 per space, it would cost the company nearly £500,000. In London, businesses could face workplace charges of £3,000 and more per space in 2005, if the recommendations of a report by the London Planning and Advisory Committee, formerly chaired by Nicky Gavron, the new Deputy Mayor of London, were followed. For a company in London with 300 parking spaces or more this could mean an extra bill of nearly £1 million per year.


  54.  The SMMT sees no clear economic and environmental rationale for the introduction of workplace parking levies to tackle the issue of traffic congestion. Before introducing charges on workplace parking, integrated transport systems have to be put in place as a viable alternative for commuters. Flexibility at local level and full hypothecation of the revenue have to be complemented with national guidelines that establish key principles and maximum limits on the amount that local authorities can charge. The impact of the levy on small businesses is of particular concern to the SMMT. Small firms with only a handful of parking spaces do not add significantly to congestion and should therefore be exempt from the levy. As the provision of parking places is a pre-requisite for obtaining a planning permission for the workplace, the levy should only apply to spaces that exceed the minimum number required to obtain this planning permission.


  55.  Following its recent conciliation procedure, the End of Life Vehicle Directive is expected to be adopted by the EU by 25 July 2000 and pass into UK law by the end of 2001. It sets new, stringent and increasing targets for recycling and recovery of materials form End of Life Vehicles (ELVs) and prescribes specific depollution and dismantling operations to support them. At the same time, it requires that last owners of vehicles may dispose of them free of charge, from 2001 for new vehicles, and from 2007 for all vehicles, irrespective of their age. Under the principle of "Producer Responsibility", it requires that Vehicle Producers (manufacturers of professional importers) will bear "all or a significant part" of the cost of setting up such a system. It also requires the elimination in production of the heavy metals lead, mercury, cadmium and hexavalent chromium, except for certain exempted applications, and a number of other actions such as material labelling and provision of information.

  56.  There are nearly two million vehicles scrapped every year in the UK. The depollution and dismantling operations prescribed by the ELV Directive for these vehicles and the achievement of recycling targets for materials which are not economic to process are likely to result in a substantial increase in processing costs which exceed the value of the saleable parts or scrap metal. Due to oversupply of recycled material the scrap value of recycled cars has fallen dramatically over the last couple of years. Under the Directive the car industry will also be incurring considerable costs for replacing prohibited materials, the provision of component labelling and dismantling information and the need to enhance the recyclability of their products to meet type approval requirements after 2005. As a result of this, the DTI estimates that under the new ELV Directive the processing of two million end-of-life vehicles per annum in the UK would cost the industry £300 million.

  57.  The Directive's requirement that producers have to bear the costs for treatment of vehicles, irrespective of their age, from 2007, represents a major retroactive financial burden and risk to the profitability and viability of UK car producers. With the ELV Directive in force, the UK motor industry would face a total liability of some £4 billion, rising to £30 billion on a European basis. These enormous additional costs ultimately will have to be borne by the 800,000 employees working in the UK automotive industry. Companies could find themselves technically bankrupt and forced to contract their UK operations which are, at best, only marginally profitable. This would result in significant job losses in the UK and lead to further job losses in the manufacturing/supply side of the industry. Even if they survive, the UK companies' global competitiveness would be impaired by the drain on their resources, affecting production and engineering efficiency and future product offerings.


  58.  SMMT calls upon the Government to use the flexibility granted to Member States and co-operate with industry in devising an implementation strategy for the ELV Directive that does not put the UK automotive industry at a competitive disadvantage. UK car manufacturers are already making a significant contribution to the solution of the problem of end of life vehicles. In the 1997 ACORD voluntary agreement between the trade associations of the motor industry and other sectors involved in the disposal process for ELVs, SMMT members have committed themselves to a challenging recovery target for material of 85 per cent by 2002, and 95 per cent by 2015. Other industry initiatives include the CARE research activities which are wholly funded by the manufacturers, improvements in car design to aid recycling and to the use of recycled materials to stimulate market development.

  59.  To maintain their competitiveness it is essential to achieve an equitable split of the enormous costs that will result from the ELV Directive in terms of processing and retroactive liability. Any funding mechanism for the treatment of ELVs has to incorporate a substantial sharing of the costs with either the Government or the present car-owning population. This could be by means of a registration tax, an annual tax, or an insurance premium supplement, all or any of which would be hypothecated into a central fund for treatment of ELVs of any make or age. This would also take care of grey, parallel and personal imports and dead brands for which there is no longer a producer to contributed (eg FSO, Lada).


  60.  According to a recent CBI industry survey on employment trends, 52 per cent of responding companies said that their performance had been negatively affected by problems in recruiting skilled labour, reflecting shortages of specialist staff such as highly skilled IT and engineering staff. These trends strongly affect the UK car industry. SMMT members have found it increasingly difficult in recent years to fill vacancies for professional engineers. Due to the lack of quality engineers at graduate level, they reported that they had lost out on business opportunities to foreign competitors.

  61.  DfEE research shows that the reason for the grave mismatch between the supply and demand for technical graduates lies primarily in the quality of graduate engineers and not their quantity. SMMT member companies complain about the lack of basic numeracy skills in graduate applicants. Most graduates have no relevant work experience, poor commercial understanding and weak communication and presentation skills when they leave university. Increased market competition and changes in working organisation and logistics put pressure on the UK car industry to recruit graduates who will not require a long "learning curve" and can perform technical tasks as well as managerial roles and communication functions when interacting with suppliers and customers.


  62.  Despite initiatives led by the UK motor industry in collaboration with British universities, the insufficient supply of quality graduate engineers continues to be a structural problem. The negative effects of the lack of a highly skilled labour force on the competitiveness of the UK car industry will increase with time and diminish the attractiveness of the UK for foreign investment. To increase the quality of graduate engineers, engineering courses in the UK have to transfer a wider range of applicable skills and integrate work experience modules in the curriculum. If bright graduates are to be attracted into the industry, a positive image of car manufacturing in the UK is needed. Public endorsement and support of the industry would help to convey an image that reflects the importance of the car industry for the UK economy. The SMMT Industry Forum has a role to play to address the problem of skill shortage. It has already gained industry-wide recognition for its achievements in the field. Increased Government support would allow the Forum to build upon its success in increasing workforce skills at engineer level and broaden its capacity.



New Car Registrations

63.  The economic boom of the late 1980s led to an all time peak in car registrations with 2.3 million new cars registered in 1989. The subsequent recession however resulted in the reduction of new car registrations to a low of 1.6 million in 1991. Following the recession, the car market began to recover in 1993 with 2.2 million new car registrations recorded in 1997. This recovery has been sustained and the car market has remained at this level. Furthermore, forecasters predict that the market will hold fast at this level for the next two years. The decade between 1985 and 1995 saw the registrations of imported cars move in line with the market average with the share of imported cars ranging between 55 and 60 per cent of the total. Since 1996 however, the share of imports has risen rapidly, and it currently stands at 72 per cent of the total. As over 80 per cent of cars imported into the UK market are from Europe, this increase can be generally seen as a result of the appreciation of Sterling against the Euro which has made imports more competitive in the UK.


  64.  From a peak of over 1.9 million units in 1972, car production output fell to below one million units by 1980. It remained around the one million mark until 1986 when it increased to 1.3 million, where it stayed until 1992. Since 1992 output has steadily risen, reaching 1.8 million units in 1999. The increase in production has been largely the result of improvements in productivity and increases in exports. These improvements resulted from new inward investment from Japanese manufacturers and the renewal of facilities by more traditional producers.

  65.  Exports have increased almost six fold since 1985, reaching 1.4 million in 1999, and now account for almost 64 per cent of total output, compared with less than 20 per cent in 1989. Although UK manufacturers have succeeded in maintaining their level of exports, many have been forced to sell at considerably reduced margins as the strength of Sterling has undermined the competitiveness of UK manufactured models. As some UK manufacturing plants however are the sole producer of certain models in Europe, manufacturers are required to continue to sell at reduced prices in order to meet European demand and maintain export markets which are extremely difficult to rebuild once they are lost.



66.  As a result of the growth in the economy as a whole during the second half of the 1980s, commercial vehicle registrations grew strongly in this period, increasing by 29.4 per cent between 1985 and 1989. Demand for commercial vehicles however fell heavily as the economy started to weaken in 1990 with the result that CV registrations fell by 43.7 per cent between 1990 and 1991. Registrations of commercial vehicles continued to fall throughout 1992 and 1993 as there was a reluctance in the market to invest in new vehicles whilst economic uncertainty prevailed. CV registrations however began to increase significantly from 1993 as confidence in the economy grew, rising by 49.4 per cent from 1993 to 1998. Registrations fell in 1999, despite overall economic growth of 2 per cent. This was partly due to economic uncertainty in the first half of the year and the very strong growth in demand in the previous four years, which had satisfied a large proportion of replacement demand.

  67.  Although demand for commercial vehicles and particularly heavy goods vehicles (HGVs) has traditionally tended to reflect the overall economic situation, this has been less so since 1995 as most vehicles are now leased, thereby encouraging and enabling more frequent changes of vehicle. Import penetration in the commercial vehicle market has increased dramatically since 1997, rising from 50.7 per cent in 1997 to 59.9 per cent in 1999. This has been largely due to both the strength of Sterling, which has enabled importers to offer highly competitive deals, and the closure of a number of UK production operations.


  68.  Whilst CV registrations fell heavily in the early 1990s, production decreased less strongly. This was largely due to very strong demand in Germany following the post reunification economic boom. As a result, 52.5 per cent of the 248,452 commercial vehicles produced in the UK in 1992 were exported. Weak UK demand however, combined with a decline in the German and most other European markets resulted in a 22 per cent fall in output in 1993. Although production grew between 1993 and 1996, production has fallen in each of the past three years. In 1999 it stood at 185,923 units, which was the lowest level since 1948. Such a fall in production is mostly due to the increase in imports and a decline in exports. By 1999, import penetration had risen to 59.9 per cent while export production had fallen from 47.2 per cent of production in 1996 to just 40.3 per cent.

  69.  The commercial vehicle sector has been through a period of significant rationalisation and consolidation over the past few decades to the extent that there are now only four light commercial vehicle producers and six heavy commercial vehicle producers, with Paccar owning two of them. Only two of these, LDV and Dennis are UK owned producers. Despite this overall reduction in the number of players and of CV output over the past few decades, those left are fighting to remain competitive with LDV, ERF and Leyland making significant investments in new product and production facilities. ERF has just started work on its new £25 million factory site at Mid-Point 18, Middlewich, Cheshire. It will bring together ERF's manufacturing, warehouse and office facilities in order to improve the company's production efficiency.


Overview of the sector

70.  The UK automotive component industry experienced a strong revival in the mid-1990s as a result of the relative weakness of Sterling, strong growth in UK car production and cost advantages in the UK compared to other European locations. However, overall cost competitiveness and quality in the sector remain relatively poor. Official data confirms a trend towards less employment in fewer firms and plants as a result of restructuring and rationalisation in the UK components industry.

  71.  The component sector is highly fragmented with companies ranging from major international players to small and medium-sized enterprises. The sector spans many products and process specialisms. Original equipment manufacturers (OEMs) supply directly to vehicle manufacturers for line-fit and others supply replacement parts and accessories to the "Aftermarket". Many component suppliers and distributors are active in both markets.

  72.  It is difficult to establish definite figures for company numbers, turnover and employment in the automotive component industry. Official classifications of the industry do not account for many companies that supply the automotive sector as part of their broader business activities in areas like metals, other engineering, rubber and plastics, textiles or electrical and electronics. Estimates based on the official classification of the sector in 1998 see around 3,500 companies generating a sales value of about £9 billion. Adding estimates of turnover from the related part of the supply base gives total gross sales as high as £13 billion with companies employing about 150,000 people in the UK. These figures are consistent with an employment total of about 280,000 in the whole automotive manufacturing supply chain and a sales turnover value of over £45 billion.

Structural changes during the 1980s and 1990s

  73.  The UK automotive component industry has undergone a profound transformation in terms of structure, ownership and working practices during the 1980s and 1990s. This is mainly due to substantial foreign inward investment as well as merger and acquisitions. These trends reflect the significant shake up in the sector on a European and global basis. The arrival of Japanese car manufacturers in the UK in the early 1980s gave the UK component industry a critical push as Japanese manufacturers needed to source locally. They encouraged UK suppliers to adopt Japanese production methods and demands in terms of product quality, efficiency and logistics. This helped to achieve considerable productivity gains, especially in the UK first tier supply base.

  74.  During the 1990s "foreign" ownership in the UK component industry has grown through acquisitions and greenfield plant investment. US owned suppliers have traditional roots in Britain and they have maintained and in some cases strengthened these. Japanese and European suppliers (Germany, France and Italy) have established sizeable manufacturing operations in the UK whereas the activities of smaller, UK-owned component supplier were more focused and concentrated on UK OEMs and other UK markets. The traditional concentration of the component industry in the West Midlands still remained strong, but much new foreign investment was channelled into areas like South Wales, the South East, East Midlands and North East. Key factors in these investment decisions were high production costs in their "home" markets and a recognition of the strong car production build-up in the UK.

  75.  However, many of these companies' business strategies have been keenly tested and are being re-evaluated in the period since 1998. Sterling has appreciated to an unexpected level and concerns raised about the sustained growth of UK car output. Car manufacturers have reduced the number of suppliers they deal with directly, from up to 3,000 suppliers for a major manufacturer in the early 1980s to only hundreds in the late 1990s. In parallel, challenging demands on suppliers in terms of manufacturing practices, product quality, cost competitiveness and research and development (R&D) investment have changed the nature of the UK components industry. The trend is towards first tier suppliers that provide complete sub-assemblies of parts sourced from a variety of second and third tier component manufacturers. Newly identified as tier 0.5 suppliers, these companies are gaining greater competence in modules, systems and even vehicle manufacture and have to meet the highest quality standards to be able to compete in the global market.

The Challenges Ahead

  76.  Despite these changes and many plant or company specific productivity gains during the 1980s and 1990s, the UK automotive component industry as a whole has not significantly improved its overall comparative international competitive position during the 1990s. The greatest challenge facing companies in the UK supply chain at present is the need to catch up and increase their international competitiveness in terms of cost and quality at a time of a very unfavourable Sterling exchange rate.

  77.  The presence of some of the world's leading vehicle assemblers in the UK is crucial for a strong UK component industry. To benefit from this presence and secure business opportunities in the future, UK suppliers must be able to succeed in the highly cost competitive European market. SMEs within the components sector are finding themselves under particularly increasing pressure to meet the demands of automotive supply chain management as practised by the major car manufacturers. The outsourcing of tasks and responsibilities by the manufacturers coupled with tougher quality control creates new demands on the skills base, flexibility and cost structure of UK component suppliers.


  78.  The UK automotive design engineering industry is widely acknowledged as being among the world leaders in providing innovative product development combined with excellence and confidentiality to the car industry. There are about 20 independent automotive design engineering businesses in the UK, each specialised in a specific area and providing an exceptional range of services. The annual turnover of the sector is estimated approaching £1 billion, three quarters of which is generated through mainly "invisible" exports, ie services or intellectual property, highlighting the importance of British automotive design in the global market. Sales have doubled over the last five years and demand for UK design products and services has continued to grow strongly.

  79.  The UK has a substantive network of vehicle makers, component suppliers, specialist R&D providers and academic institutions and many manufacturers have taken advantage of these facilities. Car manufacturers are facing an ever-increasing demand for new models and niche vehicles and have to comply with complex legislative demands, ranging from safety issues to chassis systems requirements. Automotive design engineering companies in Britain have the expertise and experience to help manufacturers meet these demands and create innovative solutions to future challenges.

  80.  Through their long experience, British design engineering companies know how to work effectively with OEMs and suppliers while guaranteeing absolute confidentiality about their involvement. Confidentiality is a critical requirement for the success and credibility of a company working with many clients. As a consequence the input of design engineering companies into major automotive programmes, models and production facilities very often receives no public acknowledgement. Confidentiality agreements therefore make it difficult to give a complete account of the success of automotive design engineering in the UK.

Partnerships and R&D

  81.  Recent investment decisions like Jaguar's opening of a new design studio near Coventry reflect the growing success of and confidence in UK automotive design engineering. Independent design companies are very successful in using their specialisation to build partnerships with rival businesses and co-operate on a project base for major car manufacturers. The rising demand for automotive design engineering and the opening of new markets in the Far East offer good prospects for continuing growth in the sector.

  82.  In order to exploit these opportunities, British design engineering companies have to meet the challenge of their competitors in the European market, particularly in terms of research and development (R&D). German design engineering businesses, for example, benefit from close links to universities and research institutions. Owing to their small size and private ownership, they are also able to re-invest higher levels of revenue into R&D than their British counterparts.

  83.  Britain's innovative automotive design engineering capability supports motor manufacturers around the world. Its success—present and future—will play a key part in attracting inward investment and improving the competitiveness of the British automotive industry.


  84.  The automotive aftermarket represents the industry that maintains, repairs and adds accessories to vehicles after they are sold to their owners by a car or truck dealer. In the UK no central body is co-ordinating any form of data collection on the diverse enterprises and business activities constituting the aftermarket. Little accurate information is available to monitor and assess trends in market share and size, thus making business planning and performance monitoring difficult for those within the industry.

  85.  The UK automotive aftermarket is estimated to comprise about 6,750 franchised dealerships, 15,000 independent garage outlets, 4,300 retailers and 2,400 motor factors. Its total value (including all replacement parts) is widely acknowledged to have reached £4.5 to 4.6 billion by the end of 1999. The total crash repair work each year, including labour, is valued between £4 and £4.5 billion.

Declining market with increasing competition

  86.  Competition within the aftermarket is stronger than ever. Vehicle manufacturers are reducing costs, while attempting to boost their share of higher margin aftermarket revenues. In order to meet the increasing demands by consumers and legislators, manufacturers and suppliers have employed new technology to offer vehicles that are cleaner, cheaper, safer and more reliable than ever before. These factors have resulted in greater quality and durability of parts. In addition to falling replacement rates and lengthening service intervals, there are other factors impacting on cost. The growing range of models and options for brand extension offered by manufacturers lead to increasing brand numbers and greater complexity of components, raising both distribution and production cost. As a consequence, the aftermarket experienced no significant increase in revenue despite an increase in the UK vehicle park at a rate of 2.5 to 3 per cent per year in the 1990s.

  87.  In order to survive in a declining market, many independent aftermarket firms are trying to achieve economies of scale through consolidation. Fierce competition in the car market increases pressure on the price of components with motor manufacturers increasingly regarding the aftermarket as an important source of growth. Parts manufacturers, in turn, have also become increasingly rigorous in the management of their business portfolios. They are disposing of those operations which fail to hold a competitive advantage, while strengthening their core business units through mergers and acquisitions. Similarly, the tyre sector has witnessed a spate of alliances as the industry leaders seek to reinforce their operations.

  88.  Further consolidation in the previously fragmented aftermarket stems from growth in new niche areas such as fast fit. Despite their reduced engagement in the production of vehicle parts, car manufacturers are increasingly concentrating on the provision of higher value-added services. For example, car manufacturers increasing use fault diagnosis technology (on board diagnostics). Without universal availability of the codes used in this technology, independent garages could face a barrier to entry into the aftermarket for newer cars and either way the cost implications might be prohibitive for them. In 1999, a wave of consolidation activity in the fast fit sector has increased the dominance of manufacturers on a European scale, starting with Ford's acquisition of Kwik-Fit. Mercedes Benz are showing growing interest in the aftermarket, Volkswagen started from scratch with a new Stop & Go fast-fit business, and Fiat acquired the Midas chain. This trend is likely to continue.


  89.  The UK Motor Sport Industry is estimated to have an annual turnover of £1.3 billion and employs up to 150,000 people in full and part time jobs. Nearly 4,000 businesses throughout Britain are involved in motor sport. In Formula One racing, the pinnacle of the motor sport industry, Britain has won more World Drivers Championships than any other nation and in the past decade Ferrari has been the only non-British team to win a Formula One Grand Prix. The UK is also home to many of the major World Championship rallying teams including Mitsubishi, Ford and Subaru.

  90.  British pre-eminence in motor sport as a whole reflects the country's strength in motor sport engineering. From the 1960s there has been a strong and consistent British contribution to Formula One engine and transmission design and there are currently over 100 British companies involved in the building or preparation of competition engines. Mercedes-Benz, for example, who supply engines to Formula One and Indycar teams use engines designed and built by the British based Ilmor Engineering. British built cars have dominated US Indycar racing for the last two decades. Altogether, Indycar racing provides Britain with annual export earnings of more than £20 million, when the value of engines, components an supporting services are taken into account.

  91.  Racing teams can also benefit from the expertise of engineers and scientists who work in research establishments such as the Motor Industry Research Association (MIRA) and in the universities. More Formula One testing takes place at Britain's premier Grand Prix circuit at Silverstone than at any other testing facility in the world. Confidential testing may also be carried out at the private proving grounds of the Motor Industry Research Association near Nuneaton, which includes a full scale wind tunnel and crash test facilities, and at the Millbrook Proving Ground in Bedfordshire. Britain's technical research sector therefore is able to provide excellent support for both Britain's own competition vehicle manufacturers and component suppliers in addition to services for overseas customers.

  92.  Motor sport plays an important role in the development of the automotive industry as a whole both in terms of the improvements it introduces to standard production car design and the media coverage and raised profile it can provide for manufacturers. Technological advances resulting from motor sport research and development are often introduced to production cars. These have contributed not only to enhanced performance but also to improved reliability, safety, efficiency and aerodynamics. Participation in motor sport can also enable a manufacturer to demonstrate the strength, reliability and other positive qualities of their cars to a large audience. In addition, hosting a motor sport event can generate considerable income and publicity, both on a national and regional level, as well as proving an international showcase for British based manufacturing and engineering expertise.


  93.  The UK automotive industry has the highest number of specialist car manufacturers in the world. As low-volume producers, most companies in the sector are small and medium-sized enterprises. Over 3,000 specialist cars are manufactured in the UK each year, with foreign demand for UK manufactured specialist cars remaining strong.

  94.  The specialist car sector is highly innovative and relies heavily on design flair in both engineering and aesthetics. Despite pressures towards economies of scale in the globalised motor industry, UK specialist car producers are successful in maintaining their low volume production of unique and innovative vehicles. TVR offer several unique model ranges and manufacture a large part of their components themselves. New models are about to be launched by Bristol and Morgan, demonstrating the sustained strength of specialist car manufacturing in the UK.

  95.  Specialist car companies share the problems of SMEs in the industry. Regulatory changes and environmental legislation have a disproportionate financial impact on small businesses that have less resources available to address the technical challenges involved. Low volume output means that the costs incurred for complying with new regulations can often not be recouped and production of specialist models might even have to cease. The financial impact of emissions legislation on vehicle costs has already led to the cessation of several model lines. Derogations for low volume manufacturers tend to be considered only at a late stage in the legislative process, adding to the uncertainty in the sector.

June 2000

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 8 February 2001