Select Committee on Welsh Affairs Minutes of Evidence


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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