Examination of Witnesses (Questions 1-19)
11 NOVEMBER 2003
MR PAUL
EVERITT AND
MR STEVE
FRANKLIN
Q1 Paddy Tipping: I am delighted
to welcome Paul Everitt, Head of Policy and Economics, and Steve
Franklin, who is a team leader, both from the Society of Motor
Manufacturers and Traders. Thanks for coming. As you know, this
is the beginning of an inquiry into how the Government implements
European environmental Directives, particularly the WEEE Directive
and the End-of-Life Vehicles Directive. Maybe you could, to start
the inquiry, just tell us what effect it is going to have on your
members and whether there will be different effects on different
members within your association.
Mr Everitt: Obviously we are most,
I think, experienced and equipped to deal with the End-of-Life
Vehicle Directive rather than the WEEE one. I think from our perspective
the ELV Directive is perhaps one of the most challenging pieces
of legislation that we in the automotive sector have had to deal
with certainly in recent times. That is mainly because it affects
a wide variety of our activities and operations, so it sets recyclability
standards and design standards for new vehicles, it bans the use
of certain hazardous materials and it requires us to start marking
components. It requires us to produce dismantling information
and documentation as well as obviously the take-back and recycling
of all end-of-life vehicles, so it impacts on our operations very
much from cradle to grave and introduces to us activities that
we had not been involved with before now. If we look at the scale
of impact, clearly it does vary greatly depending on the organisation
concerned both in terms of the different size of organisation
operating in the UK, but I guess the traditional view is that
all vehicle manufacturers are these sort of global monoliths that
operate in every part of the world and it is true that they do,
but in each Member State and certainly in the UK the corporate
structure is going to be very different. There are those which
are the UK branches of these global organisations and there are
others which are essentially independent companies that distribute
certain brands.
Q2 Paddy Tipping: What is the specialist
car maker?
Mr Everitt: Again that would be
a slightly different category and one of the areas I was going
to deal with. You have certain brands and obviously where the
market share is relatively small there will be small independent
companies. All they do essentially is they are the UK distributor
for a particular brand and they are, if you like, much akin to
an SME. In addition, you will have a whole series of small-volume
vehicle manufacturers whose products are obviously of a very different
order, the volumes they produce, et cetera, et cetera, so all
of these will have perhaps a variety of different impacts. Now,
clearly there has been a lot of attention focused on the take-back
requirements and the fact clearly is that if you have had a market
share which has fallen in recent times, then you are going to
find yourself, if you like, picking up a large park of end-of-life
vehicles compared with new vehicles you are actually selling.
That has been problematic, but it is probably not the biggest
issue and many of the issues that we are dealing with are organisational
and administrative issues. As I say, the size of organisation
and the back-up they will have varies greatly and it is the access
to information and support on a lot of quite detailed and technical
areas which in actual fact have been some of the most demanding
issues.
Q3 Paddy Tipping: So in general terms
the bigger the company, the better it is prepared?
Mr Everitt: It is the better they
are likely to be prepared and the better able they are to deal
with some of the issues that arise, yes.
Q4 Paddy Tipping: But surely manufacturers
want to get in front of this, so a lot of it is about good design
and making sure that your future designs are going to meet the
requirements of the Directive? Is that right?
Mr Everitt: I would say that certainly
the vehicle manufacturers have been working on improving the recyclability
of their products and design for recycling for many years and
yes, from that perspective, if you like, the new product end of
the market is one with which we are familiar with dealing because
the new regulations apply to new products and new models, so there
is a process for handling those issues which is much more secure
and much more tried and tested. I think it is the areas into which
this Directive strays where there is no experience, particularly
dealing with the sort of retrospective elements of the Directive,
that created more significant problems.
Q5 Paddy Tipping: We are going to
spend a lot of time with you about the older end of the market
in a minute or two, but let me just ask you this before we move
on: you are looking to the future, you are preparing new designs,
you are building in value for money, so there must be a cost in
that, but who is going to bear the cost? Is it the manufacturers
or would it be passed on to the consumer, the customer?
Mr Franklin: As Paul said about
the design for recycling, one of the other things that the Directive
has said is that we have got to eliminate certain materials from
the vehicle and that is where some of these costs have accumulated
in vast measure. First of all, if you have the sum of the parts
of a vehicle, they now have to be expanded for everyone to know
exactly what is in them, so it has had to go right down to the
suppliers which once again does start to impact on SMEs, so you
go down from tier one to two and three. The supply base has then
got to feed that information back up, saying whether or not these
substances are in the product, so there is a big cost implication
there. In fact a whole database has been set up, an international
materials database, to try and monitor that and it has not been
easy. There are still materials that have not been successfully
eliminated and Annex 2 of the Directive has extended the time
period for those to be eliminated, so there are problems and massive
costs from that. In the UK we estimate it is something like £500
million for that type of implementation, such as changing paint
shops where there is lead paint. One example for a car company
is that even if their lifespan is very reduced, there is only
another year or so to go, they have still got to change components
and in the case of fuel tanks, which has affected quite a few
people, it is a major cost. Therefore, we arrived at a figure
of something like £500 million. You ask the question as to
whether that will be passed on to the customer, it is a very competitive
market out there and cars are not cost plus—
Q6 Paddy Tipping: That is a no then,
is it?
Mr Franklin: It will creep through,
but basically it will be a cost reduction exercise through the
piece and that will not automatically just go on the price of
the car.
Q7 Mr Mitchell: It is surely a yes.
It will end up as a yes, but that is not my question. The question
is this: here you are incurring these costs for cars produced
for the European market, but you also export cars on to the international
market, so is that going to be a competitive disadvantage to you?
Other manufacturers in Japan who export on to the world market,
not Europe, and America will not be bearing a similar cost increase
and adding it on to the price of their cars. Are these requirements
going to be a competitive disadvantage on the international market?
Mr Franklin: No, they will not,
the reason being of course that Japan, Korea and even the States
are importing into Europe, so they have to comply with the Directive
anyway, so it probably will not put us at a competitive disadvantage
in that respect. It is fair to say that most vehicle manufacturers
around the world are responding to the design requirements of
the European End-of-Life Vehicle Directive.
Q8 Mr Mitchell: But they are not
meeting necessarily the same requirements for their market.
Mr Franklin: There will be small
differences, but they will still need to comply in Europe, so
they will have to take those measures. Japan has its own ELV legislation.
America does not, but it is tracking ours very closely because
it knows that if it wants to sell into this market, as it does
in Germany, for instance, where it is quite a reasonable market,
then it has to comply with the EU Directive. In fairness, some
of these engineering costs are shared. We manufacture cars globally
and across Europe, so some of those development costs and engineering
costs are shared over not just the UK market.
Q9 Joan Ruddock: I want to go on
to your members' responsibilities post-2007 and look at the problems
of disposal. I think all MPs are very conscious of how many cars
are disposed of on our streets all of the time and I really want
to look at how you anticipate that end-of-life vehicles are going
to be disposed of post-2007. What sort of mechanisms have your
members thought of in terms of funding that disposal?
Mr Everitt: Obviously we are still
awaiting the Government's consultation on proposals for post-2007.
Our understanding is that it will be based on what is termed an
"own-mark" model which basically means that each individual
vehicle manufacturer will take responsibility for the vehicles
that it has placed on to the market and we anticipate that will
be done through each individual vehicle manufacturer contracting
with a network of authorised treatment facilities so that last
owners can take their vehicles back to one of those contracted
facilities so that they can have the car disposed of free of charge.
Q10 Joan Ruddock: How convenient
do you think the placing of those facilities is going to be?
Mr Everitt: Again it is a key
issue and one I guess we are still in dispute on and in discussion
with the DTI on. I think from a vehicle manufacturer's point of
view, we support an own-mark approach and we are meeting our responsibilities
to do it in a fair, reasonable and equitable manner. What we have
said is that because of the nature of the market, there are some
mass- volume vehicle manufacturers who have many hundreds of thousands
of end-of-life vehicles that will turn up each and every year
and the kind of network that they would be expecting to put in
place will be very different from, let's say, a vehicle manufacture
who has either a very small percentage of the market or has a
very niche product which means that there are likely to be relatively
few vehicles turning up every year. What that means is that we
have to have a system that is reasonably flexible. Equally, as
we have mentioned earlier on, market shares are shifting, so we
would expect to see or we would require the network and its coverage
to be flexible so that we can expand as market shares grow and
diminish as is necessary. I think our undertaking is that we will
be putting facilities or contracting facilities in the places
where those end-of-life vehicles are arising and our undertaking
is to make them as accessible as possible. What we have said as
well is that in certain areas of the country where population
densities are very low and where there are not very many end-of-life
vehicles arising, we would like to come up with what we have termed
"more flexible" approaches which may be a number of
vehicle manufacturers clubbing together to provide a facility,
it may be that it will be a collection facility or a number of
collection facilities, it may be a Freefone number. We have not
at this stage said that that is how it is going to be because
obviously the legislation is not set, but I think our undertaking
is very much that we will meet our responsibilities. We will have
the networks that are appropriate to the number of vehicles arising
and the places where they are arising. Clearly we are going to
require far more facilities in a metropolitan area than we are
in the more rural areas simply because there are far more vehicles
pitching up.
Q11 Joan Ruddock: Given those uncertainties,
are you able to make any calculation about what the additional
costs are going to be on disposing of vehicles?
Mr Everitt: I think there are
two phases being the period up to 2007 and then after 2007. Our
contention throughout this process has been that there is value
in an end-of-life vehicle both in terms of materials and in terms
of parts. We believe that the market can release more effectively
some of that value to ensure that costs are minimised. I have
to say at the moment that we have tried to avoid bandying around,
"It's going to cost this, that and the other" because
there are a whole series of issues that are unknown at the moment.
Our contention is very much that post-2007 we believe those costs
can be minimised and in some cases there will be no cost, but
that depends again on how actively the market operates, how innovative
some elements of the marketplace which are not within our control
adapt to new circumstances and indeed how the regulations are
actually enforced. I think one of the key issues at the moment
is that there are a lot of what we might call marginal or informal
operators who perhaps do not abide by all of the regulations that
currently exist and clearly are unlikely to be able to meet the
requirements of the more demanding environmental standards that
facilities will need to meet. We believe that if those facilities
are able to operate effectively, which means they are not being
undercut by people who do not meet the same high standards, we
believe that process will mean that we will have some very professional
businesses out there who will be able to focus on improving their
own productivity and maximising the value from the vehicles that
they are able to take in.
Q12 Joan Ruddock: You have suggested
that perhaps there will not be any additional costs, but were
there to be additional costs, is the consumer going to have to
pay in the price of a new vehicle?
Mr Everitt: I think the points
that Steve made earlier on apply. We would love to be able to
think that we could put up the prices of cars to cover these additional
costs. Sadly for us, in the real world there is a price for cars
that the consumer is prepared to pay. What we have to do is find
ways and means of absorbing those costs in the most effective
manner and I think we need to look at the whole supply chain.
One of the reasons why there is pressure on suppliers in the UK,
why people are opting to source from outside of the UK and indeed
outside of the European Union is that we need to cut costs to
be able to absorb this kind of additional cost.
Q13 Paddy Tipping: Let's go to pre-2007
as this is where the problem is going to be. Just take us through
how you see the scenario there. Is it fridges piled up all over
the place again?
Mr Everitt: Again I think we have
been around the abandoned vehicle problem a few times and I have
to say that the reason there are currently abandoned vehicles
bluntly is because the last holder of that vehicle, firstly, is
irresponsible and, secondly, there is not an effective mechanism
of tracking, identifying and penalising them. Now, we believe
that the steps that both the Government and DVLA and other operators
are taking will reduce that problem, but we suspect that there
will be some increase in the number of abandoned vehicles almost
as a success measure because the more pressure there is to track
registrations effectively, the less attractive it is for last
holders who have not got their vehicles taxed, insured and licensed
to keep hold of them.
Q14 Paddy Tipping: We have been given
a figure of 340,000 dumped cars each year. You are saying it might
go higher, but continuous registration will help. Would you like
to put a prediction on how far that 340,000 is going to grow per
year up to 2007?
Mr Franklin: I think Alun Michael
made a statement in the House last October that it was 238,000.
Now, Terry Barnard, the Head of Enforcement at the DVLA, has put
a lot of these measures into place and I have asked him the question,
"How will you measure the success of these measures?"
One of the measures of it looking successful is that there will
be a small increase in abandonment as people, who do not want
to declare, who are holding on to cars which are attached to some
criminality, need to get rid of them because we hope, we feel
fairly sure that these measures will take effect quite well. You
are going to have to have an electronic certificate of destruction
and if you do not have that certificate, you have got continuous
taxation of the vehicle, so I think it will narrow down. There
will always be abandonment of some form, but it will be at a reduced
level. I think it will go up for a short time and then it will
come down and it will be fairly constant at a low level.
Q15 Mr Mitchell: I think that is
a pious hope. Indeed it seems to me that you are going into this
on a wing and a prayer in many respects, but let's just take the
disposal of current vehicles. It seems in Grimsby that there is
a habit of going along to the pub with an old vehicle and flogging
it to an asylum-seeker for £30 who then drives around in
it untaxed, uninsured, or to anybody else in need of wheels. I
am not going to slur asylum-seekers, but there have been a number
of cases. People will do anything really to get rid of a vehicle
without paying. They will drop it in a ditch, they will flog it
to some naive person, they will encourage kids to steal it, joyride
in it, dump it and burn it. As soon as a charge comes in, whether
it is in your machinery of disposal after 2007 or it is in the
chaotic situation we are now in, there is going to be cheating
on an enormous scale.
Mr Franklin: You are absolutely
right and I am pleased that you agree with me on one thing, that
they are used for criminal purposes and there is illegal transfer
of ownership, all of which will be tightened up in the future,
in 2004. Now, obviously the motor industry is not responsible
for enforcing that and as long as these measures are enforced
properly, we believe that will go down. Yes, people are abandoning
today and one of the things that is always widely said is that
the price of scrap, having fallen, is why they are not being collected.
Now, I live in Buckinghamshire and the Council for free take back
vehicles. In the back of my local paper you can see adverts to
take back cars at no cost to a local dismantler. What has happened
when people have abandoned cars is that there have been these
itinerant traders who pick them up and take them to recycled metal
dealers. Now, the Directive and the legislation will not cater
for people like that and cars will have to be treated properly
so they have got to go to authorised treatment facilities. It
is an effect of the Directive that this itinerant person, who
has been taking up dumped vehicles for the price of the scrap,
will not be able to operate at whatever level the scrap price
reaches.
Mr Everitt: I think the key point
is that abandoned vehicles are a current problem and have been
a problem for a significant period of time. The entering into
force of this Directive is not suddenly the key off to making
the problem worse—
Q16 Mr Mitchell: But there are charges
involved. It is a problem now and because people are going to
have to pay to get rid of vehicles, it is going to make the whole
situation worse.
Mr Everitt: Certainly I would
suggest that where you have responsible motorists, they tax, they
insure and they will dispose of their vehicles appropriately.
Where you have irresponsible people, they will not tax, not insure
and, therefore, not dispose of. I do not think anything is significantly
changed. From my experience of having disposed of a vehicle recently,
one phone call to my local authority and it cost £25 to get
the vehicle picked up and removed. Now, I do not think that is
an unreasonable cost for anyone to be faced with. The only reason
people do not do that is because they feel that either they do
not want to or they know that there is no comeback and that is
a direct consequence of the way that the transfer of registration
system has operated in the past.
Q17 Mr Mitchell: Well, you are speaking,
I am sure, as honest, upright people.
Mr Everitt: That is the only way
the motor industry can speak.
Q18 Mr Mitchell: But a lot of people
do not fit that description and are cheapjack about these things
and are not prepared to fork out. Actually £25 is a small
charge compared to the charges in some parts of the country. I
am not saying that people in Grimsby are more disposed to cheating
than anybody else; they are a noble, wise, far-sighted set of
electors in Grimsby, but I do notice a growing tendency to fiddle
around the issue and dispose of cars in all kinds of ways. Now,
the essence of that, I would assume, is that the Government needs
to be tougher both about the registration procedure and about
the disposal. Would you agree with that?
Mr Everitt: Yes, certainly. I
think we would make the point again that every time that the DVLA
or local authorities have operated clamp-downs on vehicle taxation
and licensing issues, they harvest a huge number of vehicles.
Either they collect additional monies or they fine people who
just hand over the vehicle and walk away. Either way, I think
that is the route by which you will stem future problems.
Q19 Paddy Tipping: So you want to
see further government action on clamp-downs?
Mr Everitt: I think basically
it is a resource issue.
Mr Franklin: And it does not just
impact on this, but those unregistered cars are going through
congestion charge zones, speed cameras, et cetera, totally undetected.
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