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


Memorandum submitted by the Institution of Mechanical Engineers


  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.


  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.


  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].


  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.


  At the start of the new millennium global Corporations involved in vehicle manufacture, or vehicle component manufacture, are facing severe business pressures including:

    —  Competitive pressures.

    —  Cost pressures.

    —  Environmental and Social pressures.

    —  Complexity (more discerning customers wanting "bespoke" specification products).

    —  Overcapacity.

  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.


  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.


  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.


  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.


  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.


  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 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.


  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.


  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.


  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.


  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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