Examination of Witnesses (Questions 81
- 99)
WEDNESDAY 4 FEBRUARY 2004
FORD MOTOR
COMPANY AND
MATSUSHITA EUROPE
Q81 Chairman: Welcome before the
Committee. Thank you for coming. As you know, we are inquiring
into manufacturing and trade in Wales, which is an inquiry into
how we can best keep companies like yours here, so do not feel
intimidated to speak. Firstly, could you all introduce yourselves.
It might be useful if you start from left to right. I do not know
the protocol of who is who, but if we could start with Mr Gore.
Mr Gore: Thank you. I apologise,
my voice is going slightly. My name is Brendon Gore. I am assistant
general manager for Matsushita Electric Europe.
Mr Reinhart: My name is Joachim
Reinhart. Good afternoon. I am President and chief operating officer,
Matsushita Electric Europe Headquarters, based in London and Frankfurt.
At the same time I am global senior executive of Matsushita globally.
Mr Gardiner: Good afternoon. My
name is John Gardiner. I am the governmental affairs manager for
Ford Motor Company Limited.
Mr Murphy: Good afternoon, I am
Bob Murphy. I am the plant manager for Bridgend engine plant in
South Wales.
Mr Evans: Good afternoon. I am
Ryland Evans, HR manager, Bridgend engine plant.
Q82 Chairman: Thank you very much
indeed for coming. In general terms could each of you briefly
describe the state of the sector in Wales in which your company
works and how do you see the health of that sector over the medium
term at any rate?
Mr Reinhart: May I start. Firstly,
let me thank you for the opportunity to discuss with you this
afternoon. As you may have recognised already, I am not a native
English speaker. I am based in Germany and I am a German. Let
me firstly briefly explain Matsushita globally in a few sentences
only. Matsushita has around US$61 billion revenues, turnover,
on a global basis employing 288,000 people. In Europe we have
got around 13,000 people and business volume amounts to around
8.3 billion. In Wales our business volume amounts
to about £400 million, coming from four factories, all of
them based in Wales. I think questions which may arise today we
have already been discussing since we are a member of the Welsh
Electronic Forum where all these questions are to develop our
business in the county in the future, so we are pleased to reply
to all your questions regarding this.
Mr Gardiner: Could I just give
the Committee a brief overview of Ford's current position globally.
I think when we provided our submission to you earlier this year
we only had our 2002 financial results and we now have our 2003
financial results in. For 2003 Ford globally made a profit of
$495 million. Much of that profit was actually derived from our
financial services and our operations in North America. If you
actually look at the automotive business in total globally we
only made a profit of $104 million and if you actually then look
at the situation of Ford of Europe, Ford of Europe last year made
a loss of $1.1 billion. In terms of where we think we will go
in Europe in this year, we still expect to make a loss, probably
in the region of $100 to $200 million. The Committee may already
be aware of some of the actions that we have taken, not just in
Europe but also in North America to restructure our business.
There is still massive amounts of over-capacity in the car business
globally and we have taken actions both in Europe and North America
to address that. If I actually look at the situation first in
Britain, obviously we are still market leaders in Britain in terms
of sales of cars and commercial vehicles. Focusing now on Bridgend,
which is where we have our engine plant, Bridgend is in a slightly
different position in the sense that we are actually growing our
business there. We announced back in 2001 we would be placing
the new V6 engine into Bridgend with $360 million of investment.
We then later revised that at the end of 2002 and stated we were
now placing a new I6, an inline six-cylinder engine, into Bridgend.
That will result in new investment in Bridgend of $425 million
and will create 600 new jobs. So in some senses I think it is
fair to say that Bridgend is bucking the trends of the car industry
in a very tough, very competitive environment, over capacity,
but in Bridgend our actual investment and our potential for jobs
there is growing.
Chairman: That is good news. Thank you.
Q83 Albert Owen: Moving on to Government
and European Union involvement and assistance, how important are
the European Union and UK grants in decision-making for investment
and re-investment?
Mr Gardiner: If I could just talk
on Ford's behalf on that, I would say that they are extremely
important . The $425 million investment in Bridgend was subject
to us actually achieving an RSA grant consideration. Obviously
it is not the total factor which is dependent upon our investment,
we have to take into account a whole range of other issues on
the investment front, GDP, productivity, exchange rates, stability
and productivity at the plant itself. But in terms of actually
attracting inward investment then I think that is still a very,
very important consideration. I do not know if Bob has anything
to add to that.
Mr Murphy: Yes. I would like to
just add and reiterate what John has said. The auto industry at
the moment is very competitive externally in Europe and across
the globe. Locally within Europe and internal within Ford it is
very competitive and when you talk about Government grants I think
they are critical to the success of a plant like Bridgend in South
Wales, which is a stand-alone facility in attracting new business
because it is a cut-throat market at the moment. There are lots
of plants with over-capacity and grants play a big part in deciding
where new programmes go.
Mr Gardiner: It might be worth
pointing out that within Ford we actually have 20 engine plants
globally, six of those are in Europe, so our competition is not
necessarily just other car manufacturers, there is also competition
between the engine manufacturing plants within Ford for new investment.
Q84 Albert Owen: Before I ask Panasonic
to give the same reply, is the availability of grants a decision
you take when choosing the location within the UK or within Wales
and can you give examples of that? Are there certain areas set
above the regional selective assistance which is not available
in every area?
Mr Gardiner: Yes.
Q85 Albert Owen: Can you give examples?
Mr Gardiner: I can really only
speak for Bridgend in this sense but obviously, as I was saying,
it is very important to the decision we made in Bridgend. I think
one of the issues, particularly in South Wales, is that in terms
of RSA coverage it is still eligible for 35% in the South Wales
area. Obviously it is less in other parts of the UK. I think if
you look at where our Dagenham plant is based, we have got a 10%
grant capability, so it is very important.
Q86 Albert Owen: That answers it.
You did mention skills in the list that you raised. You said how
important the grants are. How important is a skills base to you?
Mr Gardiner: Oh, skills are very
important. Ryland, maybe that is one for you to comment on.
Mr Evans: Yes. We have always
been very fortunate at Bridgend to be able to attract the appropriate
skills we are looking for both on the craft and technical sides,
so we have never had the problem of attracting skills.
Mr Reinhart: The same question?
Q87 Albert Owen: Yes, the same question,
please.
Mr Reinhart: Well, let us start
with the grants. Our operations have been running for 30 years
in Wales, starting with the television business, which we are
talking today about. We have received some grants and of course
this is important for inward investment, doubtless, but it is
only one of the factors to go to inward investment in one country.
Another one is infrastructure, availability of skilled workers,
skilled engineers and so forth. In this respect in principle Wales
is a good country. We have got a lot of links with universities
and other institutions for education of the people. However, since
we have to move from raw manufacturing and assembly to R&D
and other value added jobs this has to be promoted even more,
on our side as well as on the state's side.
Q88 Mr Evans: You have just said
that you have got six other engine plants globally?
Mr Gardiner: No, six engine plants
in Europe, including Bridgend.
Q89 Mr Evans: So have got five others
that you possibly looked at you say that the grants and assistance
were absolutely critical. So did you look at the other five? Did
you go for assistance and grants in the other five as well? Were
you offered grants and assistance in the other five and therefore
what made Wales the choice in the end?
Mr Gardiner: What made Wales the
choice for this particular engine, because as you say the grant
was important in this and in fact our investment was subject to
getting that grant, but in addition to that it was also the past
history that we had at the plant in producing high quality engines.
The new engine that we are placing into Bridgend is the inline
six-cylinder engine, which will go into our premier automotive
group products. The premier automotive group is Jaguar, Land Rover,
Volvo and Aston Martin. The plant is already currently producing
V8 engines for Jaguar, so there is a past historical connection
there as well and that was important. When we actually look at
new engine plant investments within Ford it really depends on
the engine and the type of programme we are looking at. So we
might tender within the plants on a Pan-European basis, sometimes
it may even be on a global basis, so there are other considerations
that we take into account.
Q90 Mr Evans: Did you go out to other
bodies within Europe and say, "Listen, we're looking to invest
$425 million. What will you give us?"
Mr Gardiner: We did look at other
opportunities, yes. We did not just look at Bridgend in this case.
Q91 Mr Caton: Can we explore this
a little bit more because I think that your actual experience
of deciding to invest in Bridgend and create 600 new jobs, which
we warmly welcome, might be very useful in informing our current
inquiry. When you get to the stage where you are going to build
the engine, you have got the six possible contenders, do you produce
some sort of checklist? You mentioned some of the factors that
you took into account, including skills and other factors. Do
you produce some sort of checklist so that you assess one plant
against another?
Mr Gardiner: Yes. I mean, obviously
we reach a situation where we are looking at an assessment across
our plants. I think a checklist is probably not the most accurate
way of looking at it. Because of the nature of our business our
investments tend to be extremely large. We are talking many tens
if not hundreds of millions of dollars worth of investment and
they are also very long term investments as well. The life of
an engine can be seven or ten years in production so we have to
look for the long term implications. I would say that yes, we
balance off and look at a huge array of factors, everything down
from political stability to some of the other factors I have just
mentioned, GDP, skills, exchange rates, stability as well is an
important factor, productivity at the plants, past experience
and history, labour force and flexible working conditions. So
yes, at the end of the day I guess you are looking at some kind
of checklist but it is a very, very detailed checklist. Bob, you
have had experience of this.
Mr Murphy: Yes. Obviously on various
programmes we have had experience on bidding for new work and
John is absolutely right, there is some sort of checklist that
exists. I think the key decision-making is around the available
capacity in some of our plants and obviously that is a key factor
versus the company building in green field sites. I think the
HR and the labour relations in the plans are key. Our ability
to prove to our management that we can work efficiently in the
past and with obviously the vision for the future on productivity
targets and measurables that we are measured on, on a day to day
and annual basis, things like hours per engine, etc, the location
to our customers. Obviously freight costs and transportation costs
are a key factor and obviously have an impact on the environment
as well when you look at transportation. With something like the
latest programme that has come to Bridgend, John was spot on by
saying that we are very local to one of our current customers,
ie Jaguar and Land Rover. So there pretty much is a checklist
that we would go through.
Mr Caton: Thank you.
Q92 Hywel Williams: I am just wondering
about the balance between local factors in affecting decision-making
and your global strategy and your European strategy. You are investing
all this money in Wales. Are you investing similar amounts elsewhere
in Europe and what is it about the Bridgend plant that makes you
invest there? Is it solely the factors to do with Bridgend or
is it part of a broader strategy where you might put some money
in Germany and some elsewhere?
Mr Gardiner: In terms of what
else we are doing, focusing particularly on the UK, we are actually
in an ongoing situation at Dagenham in terms of diesel engines,
investment in manufacturing and engineering in diesel engines
at Dagenham. That is a $500 million investment programme. We also
have with our sister company Jaguar, Land Rover investments going
on at Halewood, Merseyside, Solihull and at Brown's Lane in the
West Midlands too, so it is fairly extensive in the UK. Obviously
our investments do not just end here, they are Pan-European, Pan-global
at the end of the day. In terms of Bridgend, again we come back
to the reason why we are investing there. When we say local conditions,
I think probably because of the fact that it is very hard to differentiate
the Welsh economy from the UK economy in total, particularly in
terms of GDP and exchange rate fluctuations, etc, we are looking
at the UK national dimensions. But there are issues in South Wales
which I have mentioned, such as the fact that we have a good,
strong history of supplying engines out of Bridgend to our plants
in Europe and also to our Jaguar plants up in the West Midlands
which do give us a local element as well.
Hywel Williams: Thank you.
Q93 Mr Williams: Leaving aside reinvestment
in existing plants, does the fact that the accession countries
are going to join the European Union very shortly mean that Britain
and the other developed Western European countries are non-starters
for investment in new productive capacity?
Mr Gardiner: From a Ford perspective,
I would say no, simply by the experience of what we are currently
doing at Bridgend and our other plants in the UK. What I would
say, though, is that I do not think it is just an issue of the
accession states in the EU. Obviously we do not know what is going
to happen at the EU level, we still do not have an EU constitution,
so whether or not we will find that there will be a large shift
of regional assistance to the new states, I think there probably
will be realistically but how that will happen I think still has
to be determined. But I would say that we are in a global business
and you cannot just look at a shift away to the accession states,
I think you have to look far further afield than that as well,
the markets in the Far East, particularly China, obviously Korea
and we are looking at India as well and South America. So we are
much more into a global business and if there are issues about
investment and where things go I think you have to look at it
much more on that global business. Bob might have a few comments
on that.
Mr Murphy: Yes. I think the biggest
thing that we watch from obviously a plant perspective when you
look at investing in new programmes with the other countries which
are looking to join the EU is things like labour rates. I think
that is the key one when you look at the UK versus some of these
other countries and yes, I think it will in the short term and
long term potentially have an effect. I think that is where obviously
grants and aids that we can get from governments are going to
be key in the future because of these other countries coming on
board and bidding for work and obviously the Ford Motor Company
is looking at other countries to put new plants because they are
extremely competitive. It is going to be key.
Mr Gardiner: Labour costs are
obviously an element but in terms of automotive industry investment
the biggest part of the investment is the capital equipment costs,
tooling costs for new engines and new cars. That is by far the
largest cost that we have.
Mr Reinhart: We have set out a
very clear policy in these terms. We went to the East and Central
European countries several years ago. The fact that they will
join the EU from May next year will not make any difference. However,
in the Western European countries, including the UK, we are going
to move to more value added jobs, R&D design services and
so forth, whereas mass production, volume production, is designed
to be in the new accession countries. This also is a global perspective.
In Europe we are not competing only within Europe, we are competing
with Malaysia, China, Indonesia, the Philippines and so forth.
We could do the same production manufacturing there. That has
some disadvantages such as transportation costs, customs and so
forth. However, there is direct competition on a global basis,
we are not talking about Europe only.
Q94 Mr Edwards: Could I turn now
to your relationships with Government and ask both sets of representatives
how have you found the relationship working with the DTI and Westminster
and how have you found working with the Assembly and the Welsh
Development Agency and have you noticed any significant difference
since we have had devolution and the creation of the Assembly?
Mr Gardiner: We have a good relationship
with Government. Obviously in the car industry we have the automotive
unit at the DTI that we are in regular contact with. We raise
issues with the DTI and we have a good, solid working association.
I think in terms of the Bridgend plant, obviously prior to devolution
our primary contact, particularly in terms of grants and activity
was through the DTI but I think that has changed over recent years
and our activity at Bridgend is primarily probably directed through
the WDA and the Welsh Assembly now. I think Bob has experience
of that.
Mr Murphy: Yes, we have got an
excellent relationship with the Welsh Development Agency, obviously
working very closely with them on the interests of Ford as a plant
in Bridgend and also on the interests of our partners' (ie our
suppliers') part as well because they play a big part in obviously
the whole business of manufacturing engines in South Wales. Yes,
I think the relationship is good. They are very supportive and
obviously our vision is to make sure that that relationship continues.
Q95 Mr Edwards: Has devolution helped
or hindered you?
Mr Murphy: Helped, I would say.
Mr Gardiner: Yes, I think so,
at the plant, particularly at the plant in Bridgend.
Mr Murphy: My experience is that
obviously you have got more of a local contact, it is much more
personal and the whole interest of growing business in Wales is
there. Yes, I think it has been a big advantage.
Mr Gardiner: I think it is also
important though that the DTI is still playing a fairly fundamental
role. I know that in our recent grant application the WDA and
the DTI worked very closely with each other, the DTI helping the
WDA to ensure that they met all the provisions required of the
grant application process. So it seems to be working well on all
levels at the moment.
Mr Gore: If I could answer on
Panasonic's behalf, I think that we have quite a close relationship
with the Welsh Development Agency. We have regular meetings and
updates. We also, through the Welsh Electronics Forum, use this
as a discussion place with local government and other industry
representatives. I would say we are closer to the WDA and the
Welsh Assembly than we are to national government and the DTI.
Q96 Albert Owen: We touched on briefly
currency fluctuations. Could I ask you more specifically, does
your investment in Wales differ to the rest of Europe because
of the fact that the UK Government is not a member of the euro
zone? Secondly, has recent weakening of the sterling against the
euro affected your business with regard to imports and exports?
Mr Reinhart: The exchange rate
is a factor, yes, for export. If we talk only about export for
merchandise it is a fact that it is disadvantageous. However,
on the other hand, within the group in our factories our manufacturing
is selling mostly to other group members. We are dealing with
Europe, that means they have spending in euro and also income
in euro. So far we try to balance this, although I have to say
again it is a certain disadvantage.
Q97 Albert Owen: Would you consider
future investment on that basis?
Mr Reinhart: No, not on that basis.
It is one factor but not the major factor to decide on investment.
Mr Gardiner: As my colleague from
Matsushita has said, it is one factor among many and I think we
have been particularly pleased recently by the greater stability
between the pound and the euro. That is certainly helping. If
we actually go back and look at the increase in the value of the
pound between 1997 and February 2003 at European currencies we
were probably suffering about $1 billion net loss in terms of
Ford of Europe simply because we have a far higher sterling exposure
than most of our other competitors. If you look at Jaguar, Land
Rover roughly 60% of their purchasing each year is done in sterling
so they have a very large exposure to sterling. Ford's exposure
is about 25% of our total spend in Europe. Obviously in terms
of Bridgend, when we are looking at Bridgend we are really looking
at a plant which is producing engines that we then put into other
vehicles that we sell elsewhere but certainly, for example, even
with Jaguars we think one of its prime markets is the United States
and Jaguar and Land Rover are actually this country's biggest
exporters to the US now. If you are selling Jaguars into the US
and if the euro is substantially weaker than the pound and we
have other premium brands that are selling their European euro
zone built vehicles into the United States that gives us a considerable
cost advantage. As I said, we have welcomed recently greater stability
and the greater parity in the value of the pound, so that is certainly
helping the situation. In the past it has been a particular problem
for us because of our sterling exposure. It is not critical in
the sense that our investment decisions are based on Britain being
a member of the euro. However, I think Ford has been very consistent
over the past few years in its position of trying to encourage
the UK to join the euro at the earliest opportunity obviously
at an exchange rate that will be sensible to the country, or alternately
at an exchange rate which will not damage the long term economic
interests of the UK.
Q98 Albert Owen: So although you
as a company have a policy that you would favour to be Members
of the European Union, stability is equally or more important?
Mr Gardiner: Yes, stability is
important but I think by being in the euro zone that obviously
increases your stability. As I said, we have got stability at
the moment but maybe we will go a little bit further—
Albert Owen: I am sure the Chancellor
is listening.
Q99 Hywel Williams: Clearly we are
interested in encouraging new investments in Wales. Do you currently
envisage any new site acquisitions in the UK or Europe and do
you think any of those will be coming in our direction? Are you
linking your investments to existing plants because clearly you
are located, both companies, in one part of the country rather
than the other?
Mr Gardiner: I think in terms
of acquisitions, probably not in the motor industry. I think the
general direction is actually in reducing capacity, so I would
not envisage that. What I would say, though, is that as we have
already mentioned we have this ongoing $425 million investment
in Bridgend which is creating 600 new jobs. That investment is
going in obviously over time and the actual engine that will be
built at Bridgend goes into production in 2006 and will be in
full production by 2008. So there is still some news. That investment
is still going through. So it is not going too badly for Wales
at the moment in the general aura of the motor industry globally.
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