Memorandum by MG Rover Group Ltd
MG Rover Group fully supports the SMMT input
evidence to your Committee on this subject, but feels that it
is worth highlighting those specific issues that impact on MG
Roverthe only British medium volume car manufacturer in
the UK. The issues foremost for MG Rover are:
Shared ELV responsibility by those
who benefit from a car during its lifetime
No retrospective burden before 2007
and then with a "light touch".
A collective producer approach to
No competitive disadvantage (between
companies or between nations).
Ability to avoid accruals and historic
parc liabilities by using payment by current market share.
Consistency with rest of Europe.
The predominant issue is what will be the producer
contribution to cover last owner free hand-over of ELVs to an
authorised treatment facility? For this aspect alone, the implementation
method, financial ground rules, and timing decided upon will have
significant financial implications for vehicle manufacturers.
This is of particular consequence to MG Rover
Group Ltd, which has been downsized and would incur severe costs
due to an historical legacy from the manufacturer of vehicles
derived from a much larger group and scale of operation. (See
attachmentELV parc analysis).
The parc analysis shows there will still be
a significant cash burden to be accommodated by MG Rover to support
the free-take back of legacy ELVs from 2007, let alone any Government
proposals to pull forward producer support to 2002.
If the ELV responsibility is not shared, and
the onus placed 100 per cent on the producer, there will be serious
effect on the MG Rover Business plan. Very few volume manufacturers
are making a profit in the UK at present, and the decision would
have to be made whether additional ELV costs would have to be
borne by new car buyers, or whether businesses could stand a perpetual
lag to profitability achievement. Not only would new car buyers
have to bear say £125/vehicle for future ELV processing of
their cars, but for a market diminished company like MG Rover,
a further £220-250/vehicle would be needed to cover the cost
of free take-back of ELVs from the large pre 2002 parc.
ie if normal pricing actions had to be taken,
including VAT and Dealer margins, a total of approximately £500/vehicle
would need to be added to the new car price for the UK market.
Clearly this would not enable MG Rover to maintain
sales against competitors that do not have such a large legacy
parc in the UK. Any non-recoverable costs prior to 2004 could
directly delay MG Rover's return to profitability. Further to
this, unless the legislation is suitably designed, major accruals
would have to be provisioned for in the accounts for outstanding
liabilities on the pre-2002 parc, and this would severely impinge
on producer solvency.
In fact, although not a route we would wish
to consider from an MG Rover point of view, any competitive distortions
resulting from the implementation of the retrospective aspects
of the Directive in the UK could be legally challenged. Such effects
would contravene the Directive's own recitals of: (1) "avoid
distortions of competition in the Community"; and (7) "normal
functioning of market forces should not be hindered".
The motor industry has previously suggested
to Government that a £5/car allocation to ELVs from Vehicle
Excise Duty will fund around £80/per ELV towards processing
costs, and neatly shares the cost with those who enjoy the benefit
of the vehicle during its lifetime.
Some of the options in the DTI Consultation
Paper show promise in eliminating the devastating financial impact
of having to make major accounting provisions for the outstanding
"old parc". Trying to ignore the financial issues, which
we are informed are to be addressed elsewhere in parallel, MG
Rover's initial observations on the paper are as follows:
Together with review of other European
proposals, Option 2 particularly warrants consideration, but also
Option 1 against an SMMT "fund" proposal to avoid accruals.
An accounting provision not a "bond"
or cash fund arrangement is preferred for accruals on new cars.
Flat rate levy (if any) per ELV or
tonne of material is preferredno "green factor".
Practicality of timingsuspect
insufficient authorised dismantlers to Annex 1 standards will
result in capacity shortfall for ELV processing from April 2002.
A robust Certificate of Destruction
system will need to be in place as an initiator for any producer
The ELV Directive instructs Member States to
take necessary measures to ensure that "producers meet all
or a significant part of the cost of free take back", and
suggest January 2007 for implementation of this action.
In order to minimise the critical financial
effect on the business development of the new MG Rover Group,
it is essential that the burden bequeathed by previous ownership
be minimised. Previous outline of this issue has resulted in assurances
received from Prime Minister Blair that a "light touch"
will be applied to the transcription of this directive into UK
Government can do this by:
(a) Not assigning any cost burden to producers
(b) Sensible interpretation of "significance".
Article 4 paragraph 2, "producers meet all or a significant
part of the costs". The definition of significant should
be recognised as being 20 per cent, and that this will be the
maximum Producer contribution from 2007 on pre-2002 registrations.
(c) Providing relief to businesses such as
MG Rover where the company profile going forward is dramatically
different to the past.
(d) Looking at the best parts of provisional
plans in Germany, Netherlands, and France, etc.
In spite of its financial concerns, MG Rover
is willing and ready to take an active part in the final implementation
process for this Directive. Much preparatory work has already
been done with MG Rover taking a leading role since 1992 in:
applying design for recycling processes,
and dismantling techniques;
developing dismantling standards
and a pilot network through the formation of the Consortium for
Automotive Recycling (CARE);
strategies within the Automotive
Consortium on Recycling and Disposal (ACORD);
initiatives within the British Plastics
Federation automotive recycling group;
development of the International
Dismantling Information Systems (IDIS).
MG Rover supports the SMMT initiative in developing
a prospectus for the formation of a collective approach by producers.
The objective is to achieve an efficient national compliance scheme
for both the producers and Government, which encompasses the low
volume producers/importers. The consultation paper alludes to
the Government option to pull forward the cost free take-back
aspect to 2002. If there is 95 per cent Government funding for
the direct costs of free take-back for the pre-July 2002 ELVs,
MG Rover would be pleased to contribute to the balance of costs
and start-up and administration costs of a workable scheme from
MG Rover is confident the Committee will give
due consideration to the issues raised and be in a position to
ensure that MG Rover is not placed at a competitive disadvantage.