APPENDIX 5
Memorandum submitted by the Institution
of Mechanical Engineers
THE INDUSTRY
SITUATION
In the current automotive sector we have an
industry which is very competitive and progressive, but which
is evolving into just a few "global" corporations. Considerable
rationalisation and further company mergers will take place as
the more efficient and stronger companies "mop-up" the
weaker players.
Large scale restructuring will result in widespread
and disruptive changes as corporations implement major changes
in pursuit of greater customer choice, higher quality and higher
efficiencies (lower costs).
Efficiency improvements, often the result of
major investments in new plants and new facilities, have led to
a worldwide surfeit of manufacturing capacity. Over the next decade,
continuing closures of the older, inefficient plants will cause
major impacts to people and companies whose lives and businesses
are linked to them. The workforce within the "globalising"
industry must adjust to assimilate cultural changes in work methods
and standards, and many will be required to live and work in several
countries during their working lives. This is exciting for some,
daunting for others.
The quality and reliability of vehicles, and
particularly cars, has never been better. In the 1908s, Japan
set new quality standards that demanded huge changes to the industry
of the western hemisphere. Changes and advances occurred within
design/development processes, manufacturing techniques, materials,
and feature levels. Features and conveniences previously restricted
to luxury cars are now manifest in small, volume production vehicles
accessible to every customer.
Advances in IT and computer technology will
continue to impact operating efficiencies in the next decade,
creating further opportunity for changes to design, manufacturing
and supply methods, enabling continuous reductions in manning/staffing
levels, costs, time to market.
Summary:
The next decade is likely to see not a continuance
but an acceleration in the rate of "change" within the
automotive sector; there will be winners and losers in the context
of people, companies and, therefore, national GNPs. The UK must
act to protect its portion of this wealth creating, job producing
industry.
VEHICLE MANUFACTURING
IN THE
UK
In 1960 there were over 50 separate companies
designing, developing and producing motor vehicles; total production
was in the region of 1.2 million vehicles. In 2000 we have only
six multi-national companies producing cars and other vehicles,
Ford (Mazda, Jaguar, Aston Martin, Land Rover, Volvo), General
Motors, Nissan/Renault, Toyota, Honda, Chrysler/Mercedes/Peugeot;
plus the very small specialist manufacturers like TVR, Morgan
and Marcos. The manufacture of the large vehicles, trucks, buses,
etc has been globalised in a similar manner with Volvo and Mercedes
Benz at the forefront. There are fewer companies, but production
is around 2.2 million vehicles per year. There are two significant
characteristics about trends in the UK over the past 40 years:
— There has been a significant decline
in the "intellectual value" (R&D) being put into
cars, vans, trucks and buses;
— But, there has been a significant
increase in manufactured volumes.
The UK really is a "foreign aircraft carrier"
for vehicle production moored off mainland Europe. The UK still
has the skills, labour rates and exchange rates to provide both
product engineering and manufacturing operations at an economic
cost; advantages feared by several countries within the EU. However,
the start of the year 2000 has seen the announcement of closure
of two substantial vehicle assembly facilities in the UK; (i)
Longbridge (Rover/BMW) and (ii) Dagenham (Ford). The cost of production
at these plants was no longer competitive due to old facilities
and inefficient work practices. Could this be the start of a serious
decline in the UK share of this industry?
Plans have been announced that Ford will concentrate
diesel engine production at Dagenham, and refurbish its other
UK assembly plant (Halewood) to produce the new small Jaguar.
Plans for Rover are unclear but between them, Ford and Rover/BMW
have closed three high volume assembly plants and plan to create
one (possibly two) low volume production plants for Jaguar and
possibly for Rover). This is a serious loss to the UK and the
industry, and we should study and learn from events that have
taken place in Germany over the last decade.
The problem now facing the UK's Automotive Industry
is very similar to that faced by Germany in the late 1980's. High
labour rates and a high value Deutchmark were forcing major German
companies (including VW, Bosch, Siemens etc) to establish manufacturing
bases in lower cost countries eg Spain, Portugal and Mexico. German
companies, however, maintained or expanded their central Research,
Engineering, and Technology Centres during this major decentralisation
of their manufacturing operations. This gave Germany the capability
to re-engineer the "next generation" of "value
engineered" products that could sustain a high level of domestic
production. Germany has therefore emerged with a reputation of
automotive engineering excellence and also retained virtually
all of its domestic vehicle assembly facilities. [A very good
comparative study of Manufacturing in the UK and Germany is contained
in an ImechE Paper presented on the 17 May 2000 by Chris Simpson,
Chairman, ImechE Manufacturing Division].
Summary:
The problems now facing the UK industry are
similar to those faced by Germany 10 years ago; Germany has emerged
with its "Engineering" enhanced and its manufacturing
capacity intact. The UK must learn from the German experience.
THE GLOBAL
PICTURE
At the start of the new millennium global Corporations
involved in vehicle manufacture, or vehicle component manufacture,
are facing severe business pressures including:
— Environmental and Social pressures.
— Complexity (more discerning customers
wanting "bespoke" specification products).
The likely actions that will be taken in response
to these problems over the next decade include:
— Further amalgamations between the
Vehicle Manufacturers and more Strategic Alliances with their
key Suppliers (Tier 1 and 2) to achieve economies of scale.
— Reduction and possible centralisation
of Research & Development resources (to reduce indirect costs),
with resources designing global products for manufacture anywhere
in the world. For example, Ford could centralise total R&D
for Mazda, Jaguar, Volvo and Aston Martin within its Ford R&D
in Detroit. Emerging designs will be manufactured in the lowest
cost countries, not necessarily inclusive of the "parent"
country ie Jaguars and Volvos do not have to be produced in the
UK or Sweden respectively.
— Transfer of vehicle assembly and
component manufacture from developed to developing countries.
"Clean" products and "Eco friendly" manufacturing
processes incur cost penalties; there is significant risk that
high volume production will be transferred into the rapidly expanding
but relatively insensitive environmental countries like Eastern
Europe, India and China. In the future, vehicles for the UK and
Europe might be imported from these low cost manufacturing bases;
a policy which also helps to create wealth in the underdeveloped
world, wealth that could subsequently be used by the population
to purchase more vehicles!
— Engineering of fewer vehicle platforms,
but with a range/multiplicity of body styles, features and options,
colours, accessories etc.
— Engineering of a greater range of
propulsion systems which recognises (a) tailpipe emission reduction
targets and (b) energy conservation standards that are being adopted
in most countries within the developed world. These will include
petrol; diesel; electric; hybrids; alternative fuel and hydrogen
based engines.
— Further closures of long established
and relatively "inefficient" vehicle and engine plants
that are unable to compete with recently finished, highly robotized
facilities in the newer or more recently updated plants.
Summary:
The global picture suggests that future actions
will include further mergers, more strategic alliances, rationalisation/reduction
of vehicle R&D resources, transfer of vehicle production to
low cost developing countries and an increase in powertrain R&D
resources. The UK must act to minimise potential losses and stake
a claim upon the possible expansion in powertrain technology.
GOVERNMENT
The political policies in the UK have a huge
influence on the business strategies of all corporations and companies,
such strategies include investment planning.
At the start of this Government there was a
policy of "reducing dependence" on road transport and
enhancing other public transport systems. Government appeared
insensitive to the potential effects upon the UK's vehicle manufacturing
capacity, particularly the Midland Region's reliance upon this
industry.
However, a question on this very topic to Ms
Dunwoody during a press release dated 28 April 1999 elicited the
Government belief that the car would be with us for a good many
years to come! Just where does the Government stand with its Integrated
Transport Policy and, specifically, what does it see as the future
role of the motor car? The car must remain a key element of Government
thinking and planning if the UK is to stop the potential decline
in vehicle manufacturing or, hopefully, reverse it.
This Government had curtailed the programme
of road updating, improvements and maintenance, however, of late
there is an indication that many of the road improvement and updating
schemes (already planned to ease congestion and help with the
environment) will now go ahead, an apparent complete reversal
of policy!
Corporate Business Plans that often propose
heavy investment in UK facilities are judged high risk while there
is uncertainty about the UK joining the single European currency.
Summary:
Government policy on transport, and specifically
its attitude to the motor car, are a combination of mixed and
uncertain messages from which Industry strategy makers find it
difficult to assess the long-term viability of investing huge
sums into UK manufacturing facilities. Government must be decisive,
declare its intentions and communicate them quickly to the Automotive
Industry.
OPPORTUNITIES FOR
UK PLC
Are there opportunities for action within the
UK to minimise further losses during the transitions which are
continuing to take place in the Automotive Industry?
The answer is undoubtedly YES but assistance
must come from both Industry and Academia after the Government
has confirmed its confidence that motor vehicles play an important
role within its Transport policy. Actions must be directed towards
achievement of the following opportunities:
Hold or Expand the Vehicle Assembly Capacity in
UK
— Manufacturers seek low labour costs;
a reliable and skilled labour force; political and economic stability
(including exchange rates), high quality/reliable supplier bases,
good communication and distribution networks, low energy costs
(and perhaps many others).
— Modern Automobile Assembly Plants
act as "focal points" around which are located the satellite
plants of several major suppliers plus the manufacturing sub-divisions
of the OEMs to support JIT (Just In Time) assembly and other cost
effective processes.
It is essential therefore to maintain or expand
the number of Assembly Plants in the UK around which major industrial
centres will be formed and jobs created. The loss of any assembly
plant will produce an avalanche effect if satellites close. This
inevitably causes the cost of components to increase (due in the
main to lower production volumes) with a "knock-on"
effect of higher costs to all other UK facilities. The loss of
Longbridge and Dagenham is, regrettably, already a significant
reversal of the desired trend. The substitution of low volume
Jaguars for high volume Fords at Halewood is also an adverse trend
economically.
The UK presently has mixture of old and new
manufacturing facilities for vehicle production. There is no reason
why the modern plants, for example Honda at Swindon and Toyota
at Derby cannot match the "world class" productivity
of the Nissan plant at Washington. Older Plants like Ryton (Peugeot)
need an injection of new facilities if they are to compete with
Washington. Companies will however, decide to close old plants
and invest their capital in countries with lower labour and material
costs unless "compensating benefits" can be provided.
Government in the guise of the Department of Trade and Industry
must consult with industry to determine what forms of assistance
are necessary to at least retain, or preferably increase, future
investment in the UK.
Promote the UK as a Centre of Excellence for Vehicle
and Powertrain R&D
— Incentivise vehicle R&D to reduce
the indirect costs of "Engineering in the UK" by, for
example, providing grants or tax incentives for funding wind tunnels,
test laboratories, and high capacity computers and software. The
UK is renowned for its technical competence in "leading edge"
research, engineering and technology in aerospace and automotive
design and development. A classic instance is that few people
are aware that in Formula One Racing the Ferrari cars and the
Mercedes engines are designed and developed in the UK and not
in Italy and Germany respectively. Daewoo is another example where
the R&D activity is completed in the UK but all production
takes place in other countries.
— Support the emerging trend of "Design
Houses" that offer a range of design services to OEMs. This
"contracting" of work on niche products and vehicle
options will continue to increase as customers become ever more
discerning and seek "bespoke" specifications for their
personal and business vehicles.
— Grasp the opportunity offered by
the projected growth in Powertrain design and development to ensure
that Research and Test facilities plus associated job opportunities
come to the UK. There are a number of mechanisms for incentivising
the UK as a centre for powertrain excellence.
— Promote "Engineering" in
Schools and Universities to maintain the UK education and skills
base in Science, Engineering and Technology. It is unacceptable
that "engineering" science does not feature within the
present National Curriculum.
Summary:
Actions must be implemented to first, retain
or expand vehicle assembly capacity to prevent a "pack of
cards" collapse from the closure of dependent satellites.
Second, to grasp a major portion of the projected expansion in
Powertrain research, development and manufacture, and third, to
revise the school curriculum such that it recognises and promotes
the opportunities offered in Engineering and especially Vehicle
Engineering.
THE PRODUCT
The product manufactured by industry has changed
over the past 20 years in a manner we could not have expected.
All cars now feature levels of reliability, comfort, refinement,
quietness, security and safety that were the domain of luxury
cars just 30 years ago. Any manufacturer deviating from the new
"norms" of basic requirements of customer acceptance
will not survive in the market.
The populations of the developed world are now
living much longer, creating further opportunities in future car
designs that must meet the needs of "Senior Citizens".
Thus we look for the car to have a complete new meaning in the
future.
Propulsion Systems—the development of
new and alternative power systems has already been addressed above.
Summary:
The motor vehicle will continue to evolve in
design and specification to meet changes in customer demand, the
challenges of environmental standards and energy conservation.
Investments in people, time and money will be required over the
long-term. The population will not give up its requirement of
"independent mobility", Government policy must recognise
and accommodate this fact.
THE FUTURE
We can expect to see many emerging technologies
applied to motor vehicles including head up control displays,
automatic distance keeping, low visibility assistance, automatic
motorway convoy driving, alternative powertrain system etc, being
specified for cars in the decade ahead. The customer (who may
come from a wider age bracket—including disabilities—and
with a wider range of leisure interests) will order a vehicle
to his/her specific requirements. Manufacturing facilities will
have to be adaptable and capable of delivering a high quality
product to the required specification, at the right price and
at the date when it is required. The days of speculative high
volume production are over.
To improve air quality and reduce energy demand
there is scope for the UK to take the initiative with a "scrapping
policy" in which owners are encouraged to replace their older
vehicles by new more efficient ones. Modern vehicles have less
demand on natural resources since materials in scrapped vehicles
will be re-cycled for reuse. Typically, a modern vehicle like
the Ford Focus has 80 per cent of its materials content recyclable
and moreover, one Ford Escort in 1978 produced more emissions
than 60 of today's Focus.
Looking further, the development of alternative
energy forms and new modes of transport will certainly be a requirement.
UK plc must stake early claims and use latent talents (eg Ricardo;
Perkins) to develop such systems then capitalise on our manufacturing
capabilities with the production of future systems.
Summary:
A number of new technologies will be exploited
in future vehicles. A scrapping policy would accelerate the sale
of clean/efficient vehicles. Materials are increasingly recyclable
and this facet should be exploited. The UK has some good Powertrain
resources that can be used as a base from which to place a major
stake in (among others) an expanding market for Hybrid, Electric
and Hydrogen power systems.
OVERALL
Progress in the Automotive Industry will certainly
have its ups and downs, inevitably there will be many set backs.
There is no doubt the British ingenuity, flair and inventiveness,
if channelled in the right direction, can make a major contribution
to the global scene and bring profitable industry sectors to the
UK. The opportunities are endless, some may come from disappointments,
but given the right Government support and encouragement these
can be exploited to at the least maintain, but hopefully increase,
our Country's manufacturing capabilities.
29 June 2000
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