APPENDIX 3
Memorandum submitted by The Royal Academy
of Engineering
1. INTRODUCTION
1.1 The Royal Academy of Engineering welcomes
the opportunity to submit evidence to the Trade and Industry Committee's
inquiry into "Vehicle Manufacturing in the UK". The
response which follows is a collation of personal views expressed
by Fellows with direct experience of the vehicle manufacturing
and automotive components industry. The views are not necessarily
representative of all Fellows of this Academy. One Fellow, Professor
D R Towill FREng, provided a more detailed response and this is
included in its entirely as Annex 1.
1.2 Fellows commented on the challenge posed
by the breadth of the inquiry, embracing the current state and
future prospects of vehicle manufacture in the UK. The absence
of a sharp focus to the Committee's Terms of Reference for this
inquiry has thus contributed to the general nature of the statements
made herein. The comments made are applicable to the manufacture
of cars and commercial vehicles.
2. MANUFACTURING,
SOCIETY AND
GOVERNMENT
2.1 Manufacturing is a very important area
of economic activity as it is a source of wealth, long term economic
success and provides benefits to society. The most successful
organisations—anywhere in the World—are those that
invest their efforts and their money in getting everything 100
per cent correct, so that the real costs of manufacture are held
down as low as possible, thereby maximising the benefits to all.
The connection between vehicle manufacturing in the UK and employment,
both directly and at suppliers, is well recognised. This relationship
is understood also in terms of political success for constituencies
based in the industrial areas of the Midlands.
2.2 The history of vehicle manufacture in
the UK mirrors that of much industry, small family dominated companies
attempting to compete in an increasingly capital-hungry industry
with too little investment. Recognition of this in the '70s resulted
in consolidation driven by State intervention but the industries
remained uncompetitive in quality, design and cost.
2.3 The provision of public money to inefficient
producers, thereby disrupting the market and spoiling the efforts
of relatively unaided market leaders, is viewed as being generally
a counter productive process. The panacea of a huge injection
of public money has been given often to overcome the failures
of management yet there has been little attempt to attack the
root cause of the problem.
2.4 There is a view that political decisions
cannot resolve industrial problems. Political intervention, based
on a short-term optimistic viewpoint, results in an imbalance
in the decision process causing failure in the long term. Decisions
taken to save jobs, whilst politically and socially understandable,
often fail to take into account a balanced long-term view of the
viability of the company. History reveals a trail of destruction
and demotivation arising from the predilection of Governments
and politicians for social engineering in preference to industrial
efficacy.
2.5 It is industry's role to consider:
— Product—design, quality, sales
potential;
— Price—fix a competitive product
price to ensure a viable and sustainable business;
— Productivity—employee performance
together with appropriate capital investment;
— People—industrial relations,
training;
— Profit—to ensure the future
of the company.
2.6 It is Government's role to ensure:
— level playing fields—within
this country, within the EU, comparison with practices in other
countries offering grants and subsidies;
— support—through subsidies if
necessary, where external factors beyond the company's control
but within the influence of Government pertain;
— assistance—in the case of foreseen
long term failure, through staff training for alternate employment
and not simply funding of a temporary measure to shore-up ailing
companies to preserve employment in any given area.
2.7 This inquiry raises the wider political
issue of what, in the national interest, should be the level of
manufacturing industry in the UK. Rather than chasing the maximum
short term personal or financial gains, due consideration must
be given to those decisions whose consequences may have very serious
long-term implications on a large number of our people and our
national capability.
3. VEHICLE MANUFACTURE
AND THE
AUTOMATIVE COMPONENTS
INDUSTRY
3.1 Vehicle manufacture in the UK has some
history of economic success, especially in specialised markets,
implying that there should exist some potential for economic activity
in this sector within the UK. The racing car industry is highly
successful and should be commended but there is immediate spin-off
from the technology employed to the common motor vehicle.
3.2 The UK is good at vehicle design and
technology with the design school at the Royal College of Arts
being particularly successful in placing its graduates world-wide
and securing an international reputation. However, this does not
produce wealth for this country.
3.3 The design, development and manufacturing
of automotive components remains a UK strength but, in many cases,
the outstanding firms have been bought by overseas companies eg
Lucas and T&N. Existing UK companies which need to be encouraged
and nurtured include GKN and Pressac.
3.4 Reasons given for the downturn in the
performance of the UK vehicle manufacturing sector inevitably
focus on the quality of the staff. A management culture where
the individual is expected to make a success of any activity,
without any real knowledge or understanding of the underlying
process, has resulted in the loss of competent engineering staff
who previously carried the knowledge base. In labour intensive
assembly activities there is a poor level of numeracy and literacy,
below that in Germany, Belgium or Spain. There has been a failure
in attracting and retaining bright, young people within the industry.
There is a need to maintain the motivation of people to discourage
them from joining the service sector if the vehicle manufacturing
industry in the UK is to prosper.
3.5 That motor vehicles are needed in this
country in very large quantities is seen as a continuing state
for many years to come. The development of the engineering design
of the vehicle is an urgent and continuing competitive need. This
country has a tradition manifested by examples such as the Mini,
Range Rover, Jaguar, of inspired creations arising from the work
of a group of people at a single location involving component
suppliers. These products become a marque which overseas buyers
strive for. The existence of such marques serves also as an attractor
for young people wishing to pursue a career in vehicle manufacture.
3.6 Original Equipment Manufacturers (OEMs)
have embarked on a trend of limiting their activities to vehicle
assembly operations. In the past, these companies provided much
support to the education sector and there is a fear that narrowing
of their sphere of interest will have repercussions for the University
sector. To replace the loss in funding, Universities will have
to embrace overseas-based companies to a greater extent than before.
However, this OEM scenario presents significant opportunities
for the more active component manufacturers as they acquire the
potential to serve much larger markets. It seems unlikely that
anyone will be in a position to dictate where to draw the line
between vehicle and component manufacture, not even Governments,
but the future for world class component manufacturers could be
excellent.
3.7 The fostering of the growth of the free-standing
component supply industry has resulted in some of the larger companies
becoming as big as, if not bigger, than some of the OEMs. This
specialisation in the supply base affects the demand for personnel
in any one country where a particular group of components might
be sourced. It also limits the longer-term flexibility of sourcing
patterns with significant impact on future industrial capability.
The loss of a single large component company or group of similar
companies will inevitably mean that sector of the industry is
lost forever.
3.8 Today, there is over-capacity in the
world vehicle manufacturing industry. Many well established manufacturers
exist in other countries and there is little point in trying to
re-enter this market. There is neither the need nor the economic
justification for huge numbers of differing vehicle platforms
in the world. The UK needs to be strongly associated with vehicle
building in different countries in order to secure economies of
scale in platform and component design, as well as component manufacture.
3.9 The loss of the controlling ownership
of a manufacturer to an overseas buyer results in the loss of
control of the product, its development and procurement from suppliers.
A consequence of these decisions being made overseas may be a
reluctance by a supplier to invest or vice-versa. This is especially
disadvantageous with increasing globalisation as the suppliers
must remain in the top league if they are to be successful.
3.10 Virtually all leading companies claim
to operate integrated design/development/manufacturing functions
but a key item is the location of the control centre for any operation.
Although not important from an operational standpoint it is relevant
to the percentages of personnel from each participating country.
This in turn impacts on the output from the tertiary education
systems in each country hosting a major site. Moving a major operating
unit from one country to another has long—as well as short-term
implications which need not necessarily be identical.
3.11 Vehicle manufacture has a lower limit
of size below which it is uneconomic to operate. There is no formula
to determine this limit as the complexity and type of product
will have a direct bearing on the equation. In the past, many
of the now defunct UK operations failed to recognise this in their
planning with unfortunate consequences. Any consideration of Government
(or any other) aid must consider carefully this factor, ahead
of any decision. It must be in prime position in the decision-making
process.
3.12 The UK vehicle manufacturing industry
has the potential to make a major contribution to the economy
but its image must change. It must return to a position where
product and process knowledge is treated with respect. Long term
support is required for technological development but this is
unlikely to come from anyone other than Government because of
the "one year at a time bottom line culture". (Perhaps
a legal requirement to list the capital value of product knowledge
on company balance sheets would be an encouragement?) The injection
of large sums of money as short-term palliatives will result in
much the same position as the present one in a relatively short
period. Hard lessons need to be learnt from past mistakes and
the necessary people issues faced in the short-term. Management
and work practices must be brought up to "World Best Standards".
Only then will there be a chance of success.
June 2000
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