Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 4 FEBRUARY 2004
FORD MOTOR
COMPANY AND
MATSUSHITA EUROPE
Q100 Hywel Williams: Yet you were
saying that the life of the production of the engine runs to 2015?
Mr Gardiner: We have not given
a figure but engine architecture, I suppose, is seven to 10 years.
Mr Murphy: Yes, seven to 10 years
is probably a good average in the current climate where we are
obviously looking to be more consumer focused and looking to modernise
engines obviously to meet the consumer's needs on fuel economy
etc. and engines change, but the architecture, I would say seven
to 10 years is probably a good average.
Mr Reinhart: From Matsushita's
side, we have no concrete plans to make any acquisitions. We have
a similar situation as Ford has. There is over-capacity in Europe
in production facilities. However, on the other hand, we are continuously
investing in existing plans in order to get the latest state of
the art in manufacturing processes as well as—and this is
more important for the Western European part—in R&D.
R&D needs a huge investment as a group. Matsushita worldwide
is investing around about 8% of the total revenues into R&D,
which amounts to around about US$5.5 billion. This is quite a
significant number and I think Ford has a similar numbers, I guess.
So not investing in existing facilities would lead to the death
of the operation and this it is not our intention to do.
Q101 Mr Williams: In general does
your company expand through new developments or through acquisitions
and mergers and what is your company's attitude to vertical integration
and the purchase of any suppliers who supply you on a regular
basis?
Mr Gardiner: I think in terms
of the purchasing of suppliers, we work very closely with our
suppliers. That is critical to our business. If you look at an
average part of it, a good 50, maybe 60% of what goes into a car—and
we are talking of engines and all of the components—is actually
brought in from suppliers, so it is very important. We actually,
I think about three years ago, spun off a large part of our in-house
electronics organisation called Visteon so we have actually divested
ourselves of part of our supply chain. So yes, it is very important
to be close to our suppliers and in terms of vertical integration
and buying up suppliers, no, it is much more a case of working
very strongly with them, I think.
Mr Murphy: Yes, I totally agree
with John. I think the term "supplier" now is becoming
a bit of an historical statement. They are our partners. I do
not think the company's vision is not to vertically integrate,
it is to work closer with the suppliers, to take waste out of
the system back and supply change so that we can make our product
cheaper and obviously more cost effective and at the end of the
day more competitive out in the market.
Q102 Mr Williams: So your expansion
comes through new development rather than acquisition?
Mr Gardiner: And through increased
market penetration with vehicles. But it is not just about volume
and growth. That is part of the equation in the car industry but
it is also being able to sell in a profitable manner. That is
key and sometimes we can involved in unprofitable business which
might increase your volume in terms of car sales but it does not
increase the bottom line. So it is not just a question of expansion
for expansion sake, it has got to be on a sound business footing.
Mr Reinhart: We are in a similar
situation. In our industry the most important factor to be successful
is speed to the market but that can be only realised by having
close collaboration with all the suppliers and I would also say
you should not name they suppliers, they are partners. We are
developing with them technologies, parts and so forth. Not everything
is done in-house, we are also asking our partners to do a lot
of things. So far we are traditionally not a company having only
a short term relation with the supplier. Our policy is to have
a long term partnership with suppliers and this will be even more
important in the future since speed to the market is a key success
factor.
Q103 Mr Caton: I have a different
question for both our guests here this afternoon. First with the
Ford Motor Company. Can you give us a bit more of the rationale
of why what is now Vistion was spun off from Ford?
Mr Gardiner: Yes. Basically that
was a global decision. It was felt that Visteon would probably
profit in a better environment if it was actually separate from
the company. It does supply other automotive manufacturers, it
is not solely linked to the Ford Motor Company, and it was just
felt that for the development of that business it made more sense
to actually spin it off and not to keep it in-house.
Q104 Mr Caton: Thank you. To Panasonic,
ironically you have announced the possibility of losing 600 jobs
at the same time as Ford are telling us they are going to create
600 jobs. The Secretary of State for Wales in a recent press notice
signified his intention to do all he could to help but realistically
is there anything that the UK Government can do to avoid these
job losses or help you avoid these job losses or is it simply
that wage rates in Central and Eastern Europe are that much more
competitive?
Mr Reinhart: It is a bit difficult
to answer your question precisely because we have just started
the so-called consultation process with our staff, unions and
also we have informed and have close contact to the WDA and other
institutions. I think more important than to talk about keeping
mass production in Wales is to talk about the future business
we can sustain here. Sustaining a job on a value added basis is
much more important and that is the future also for the Welsh
economy. That is our view. I will give you an example. In China,
for instance, we have set up in the last 10 years 42 factories,
not only because of cheap labour costs but also it is a huge market
of 1.3 billion people. However, mass production is moving around
the world. The track is running and we are in the global competition.
That means we need to take advantage of each and every cost factor
we can get and in Western European countries and the UK—Wales
is the same—labour costs are pretty high. That is also reflected
in parts prices. We are not producing engines for cars. That is
a big block and a big issue but we have many plastic components,
metal components and so forth with also labour costs involved,
therefore we have no chance. If we want to survive and if we want
to sustain jobs in total we have to move with mass production
to East and Central Europe. That does not mean we have made a
decision. We are in a consultation process right now and we will
look for each and every possibility of how to keep most of the
jobs, if possible, here in Wales, offering different opportunities.
Q105 Mr Caton: I respect that you
are going through the consultation process. I am not going to
press you on that, but even from the evidence you have given us
and from what you have just said it looks a very difficult task
to retain colour television production?
Mr Reinhart: It is difficult,
yes.
Q106 Mr Caton: So have you in mind
any of these higher quality, high-tech R&D jobs that could
come into your base in South Wales to help to replace the jobs?
Mr Reinhart: Yes, we have invited
quite a number of advanced technologies to our R&D centre
in Melon in Wales. This is future MHP, if you know what it is,
multi-media home platform technology, which is upcoming technology
in the television and broadcast business. We have invited all
MHP technologies to be developed here in Wales, not only for Europe
but also partially on a global basis for Australia, which as the
same system, and other countries who have the same power system
or the same broadcasting technology. So we are looking for jobs
where we can have a better leverage of our skilled engineers and
better use of our workforce on the high-tech level in Wales. I
am sorry to say this is a different number compared to the mass
production number, that is for sure, but this is the way which
forces us to compete in a global competition. There is no way
out.
Q107 Mr Evans: This sounds awfully
bleak, to be honest. What you are saying is that you have announced
the possibility of 600 jobs going. This is all to do with the
over-capacity, is it, of tv screen production globally not just
within the United Kingdom?
Mr Reinhart: No, that is only
to a certain degree to do with capacity. There is no direct reason
for capacity. We are concentrating the same number of production
in Czech Republic, if we decide finally.
Q108 Mr Reinhart: I am sorry, what
was that about the Czech Republic?
Mr Reinhart: In the Czech Republic
we have another plant—if we make the decision—where
we can concentrate all jobs for television.
Q109 Mr Evans: So am I right in understanding
then that a lot of it is about the unit cost of production and
that the Czech Republic is now going to be more attractive to
Panasonic?
Mr Reinhart: In terms of labour
cost.
Q110 Mr Evans: In terms of labour,
yes, absolutely. I am just wondering where is it going to stop
then? It could be microwaves next, it could be PCs, it could be
a number of other things that you are involved in and I am just
wondering are we going to wave goodbye to Panasonic at some stage
because you decide that the unit cost of production, labour production,
quite clearly is cheaper in Eastern Europe and in Asia? So what
future have we got with Panasonic?
Mr Reinhart: If you take those
two examples you have mentioned, computer production as well as
microwaves, it is an entirely different business market. Computer
production is for very special clients. It is a totally different
business than the mass production of colour tv. In the case of
microwaves, yes, we have competition from China, very harsh competition,
but we are not concentrating on the low end. If we were to do
so then we could go, we have to go out of Wales. But we do not,
so we go to the centre and high end of the merchandise and this
gives us better margins and we can use the expertise and skills
we have built up in that factory.
Q111 Mr Evans: Is there anything
we can do to save these jobs, do you think? Is there a possibility
that they could be saved?
Mr Reinhart: Yes. You mean the
colour tv?
Q112 Mr Evans: Yes.
Mr Gore: I think it is very difficult
to comment on that while we are still going through the consultation
process. I understand your desire to know but at this stage it
is very difficult to say.
Q113 Mr Evans: Well, I just want
to know. If the Secretary of State has said this, and he said
it for a purpose, clearly we want to see these jobs saved here.
I understand what you say about the high value end and I know
a lot of manufacturing companies are doing exactly the same, but
I am sick and tired of opening my newspapers and reading about
hundreds of jobs being exported to China, India and various other
places. I actually hope that there is a future for manufacturing
in this country. So I am asking you, do you think there is a future
for manufacturing in the United Kingdom or are the Chinese going
to come in at every stage, or Asia come in at every stage and
look at what are the cherries to be picked off our manufacturing
trade?
Mr Reinhart: Yes, there are possibilities
if we talk about new technologies and solution business. Simply
black box business—and I regard colour tv as a black box
business—without offering solutions there are only minor
possibilities to keep it in West Europe. I am not only talking
about the UK. But if we provide services, solutions, for instance
a set of boxes together with broadcasters and service providers
there is a future, yes.
Q114 Hywel Williams: Clearly you
are saying that labour costs are a huge influence on the mass
production but clearly we would be interested in differentiating
what Wales has to offer from that which is available in the Czech
Republic or wherever else. To both companies really, what are
those other factors which would differentiate Wales as a potential
place where you could invest and expand? Mr Reinhart, you have
clearly referred to research and development and from my position
of being previously employed in the university sector I would
be interested in links that you might see potentially in terms
of research and development working with the excellent higher
education sector that we have in Wales. If I could also refer
that to the Ford Motor Company as well.
Mr Gardiner: Certainly, in terms
of research and development in the automotive industry, the Ford
Motor Company, if we look at both Ford "Blue Oval" and
also Jaguar, Land Rover, is fairly dominant in the UK. I think
we actually account for about 90% of all automotive R&D. To
differentiate between what happens at Bridgend, because Bridgend
is a manufacturing plant and the R&D centres that we have
in the UK are not just in the UK, they operate on a Pan-European
and a global basis, whether they are at Dunton in Essex or Whitney
and Gaden for Jaguar, Land Rover and Aston Martin in the Midlands,
and in terms of R&D of the engines that we have at Bridgend
the Ford engines, the "Blue Oval" engines that we produce
at Bridgend are linked into our R&D centres in Essex. Jaguar
engines are linked in with Whitney and Gaden and the new I6 will
be linked in with Skövde, which is based in Sweden. That
is the engine originally derived from a Volvo platform. But we
do have links and we do have some R&D actually at the plant
in terms of the manufacturing process that Bob can take you through
and also he can talk to you about some of our higher education
links or educational links in Wales.
Mr Murphy: Yes, like John said,
our prime goal in life at Bridgend is manufacturing engines. We
have a team of engineers but obviously have very close links with
the R&D communities both in Essex, up in Whitley, Gaden, out
in Sweden and in Germany. But part of our manufacturing process
when we design, develop and then manufacture the engine is obviously
we have got to make sure that the engine is ready for mass production
and therefore our test engineers and our engine evaluation laboratories
touch base and communicate on a daily, weekly basis with the research
functions. So that is a big part that we play in research and
development in Bridgend. Overall as a company it is a tiny part.
I think the links that we have with the universities is key. We
have a big link in Bridgend with Swansea University, we have a
big link with Cardiff University. Swansea is more on the technical
front and we work very closely with them on materials issues and
development of things about the material parts of the engine.
The Cardiff Business School is all about lean manufacturing and
we work very closely with Cardiff Business School. We put a lot
of people through degrees and Ryland can take you through a little
bit more detail on the education part of our links with the universities
but also Cardiff Business School work with our supply base as
well on becoming lean because that is where a lot of the cost
is, taking waste out of the engine.
Mr Evans: So far as education
is concerned, we work with the Swansea Institute, in Swansea naturally,
in manufacturing computer systems degrees, the University of Wales,
Newport Institute on electrical and instrumentation and of course
we do the traditional apprentices in our Bridgend College.
Mr Reinhart: We have quite a number
of links with universities and we have quite a tradition to offer
job education in-house and, as I said earlier today, looking ahead
of new technologies which are coming up and which we need to develop
here, since we have a skilled engineering force here these links
and these collaborations will be even closer and it is our plan
to do so. Looking at R&D activities in total, again we have
to look on a global basis. However, in many cases Europe is the
leading area of technologies, especially in our industry and consumer
electronics. We can develop a global chassis for a television
set on a global basis, mainly in Japan, China or elsewhere, but
all the specific requirements we need for Europe, which has a
variety of different standards within the broadcasting industry
and so forth, we have to do in Europe. This is a big advantage
and also to be at the genuine source of this technology. Therefore,
R&D is getting more and more important in Europe and we will
enlarge it, definitely.
Q115 Mr Williams: Perhaps you could
tell us something about the people employed in your R&D operations.
Is there a job structure, a progression, and perhaps you could
tell us something about the qualifications that you require and
also say something about the pay and conditions for R&D people
working in your company as opposed to other countries?
Mr Reinhart: I am very sorry,
I am not the inside, I am not factory, I am responsible for the
European business entirely, but maybe Brendon can answer.
Mr Gore: I can briefly outline
maybe. We have a design centre in Cardiff with up to 100 engineers
working there, ranging from graduates who have come straight out
of university to people with a number of years of experience.
The local head of this unit has been with the factory since it
was founded almost, 1974, and we have built up a centre of excellence
here for tv design and it is really developing the skills in-house
and getting the right people coming in that is the key for us.
This is something that we are working on continuously. I should
also mention, you talk a lot about graduate recruitment but for
our business vocational training is also very important and it
is something we would like the Government and the Assembly to
consider as well.
Mr Gardiner: In terms of providing
solid R&D careers, obviously the automotive industry is very
important in that and I would like to think we are very successful
at that in Ford to the point actually where our chief technical
officer, the lead engineer in the company, is actually a Welshman,
so we are not doing too badly by Wales at the moment, that is
Richard Parry Jones. Obviously we have a very strong structured
career progression path through Ford for the engineering community.
At any one time as well we are also looking at a very large intake
of our engineers involved on vocational degree courses, possibly
5-600 at any one time. Obviously the people who would be based
at Bridgend on the R&D engineering side are going to be people
who will be at Bridgend for a certain time and will probably migrate
to other plants and other locations. Bob can speak more on that.
Bob is a prime example of that. He has been down at Bridgend for
the past three years but prior to that he was working in Merkenich
in Germany and then out in the States. So it is very important
that we give our people a good, strong progression in R&D
careers.
Mr Murphy: Yes, the engineers
who obviously link heavily into the R&D community at Bridgend
are pretty much all graduates. Some of them come from the local
universities but in the structure of all that and when you talk
about career progression within R&D pretty much the whole
spectrum is covered. There are tool makers, dye development technicians,
etc., who can then progress into the engineering ranks and then
you are into the ranks of technical specialists who specialise
in certain parts of an engine function or a manufacturing process.
So the whole spectrum is huge and the ability to progress through
that spectrum is pretty flexible as well. Ryland, do you want
to comment?
Mr Evans: Yes. The people who
actually do this sort of movement from Dunton to Bridgend, it
is all part of their chartership and they do this as part of their
qualification and chartership.
Q116 Mr Caton: This one is for Panasonic
initially, although perhaps if our friends from Ford want to comment
I would be interested to hear what they have to say. In your evidence
you argue that the challenge for Government is to create a culture
and reputation in Wales that would attract research and development
and you highlight the need for partnership between public and
private sectors. I wonder if you would like to expand on what
specifically you would like to see the Government do in meeting
this challenge.
Mr Reinhart: The role the Government
can play is, to be honest, very little in a direct role. In the
long term aspect of it, yes, Government can give the right circumstances
and programmes to foster education, to talk with industry about
necessary skills, not only looking at the public sector but also
talking with industry about what expertise and skill you need
for the future and then setting up educational programmes. This
is one of the most important things Government can do. Secondly,
infrastructure, which is already quite well done in Wales, is
a very important factor since if we want to keep manufacturing
we are also talking about transportation, service and forewarning
and so forth. Also, of course, electronic infrastructure is very
important. We cannot look at the R&D unit in Cardiff separately,
we need to have communication across the globe. So electronic
infrastructure is one of the most important issues for the future
and this is somehow linked to governmental activities.
Mr Murphy: If I was to comment
on really the biggest things that Government can do for Ford Motor
Company and if I was to put my Bridgend local hat on, I think
it is obviously grants in the future. As I said earlier on, the
automotive industry within Ford is really competitive and it is
getting more competitive daily with over-capacity, etc, and I
think that is something that I would be looking to Government
in the future to support, especially the Bridgend engine plant.
The other area is transportation, which my colleague just mentioned.
Obviously a big cost in any sort of manufacturing environment
at the moment is transportation of freights. Environmentally there
is a big push to go off road onto rail and I think we need to
work together on looking at how we do that and the subsidies and
the grants available to move on to rail networks, etc, because
I do not think we are quite there yet and that is going to be
a key pressure in the future. The other one is our partners, the
supply base. I think if we are to become competitive and if I
locally am going to compete with the best in the world, ie the
Toyotas and Nissans, etc, then obviously I need to work closely
with the partners and I would be looking to the Government and
the Welsh Development Agency to support our partners, ie the suppliers.
The other one mainly, I think, is with us growing locally in Bridgend
if you look at where our people come from normally it is from
the small/medium enterprises around here, some other companies,
and I think the backfill and the education of those people who
go back into the SMEs is key and the education of the people who
come and work in the SMEs for us to take the guys into Bridgend
is vital. So from an educational standpoint I think it is vital
as well and we (as a region in South Wales) are obviously looking
for support.
Mr Caton: Thank you.
Q117 Hywel Williams: Can we just
come back to the R&D issue again. The Chancellor brought in
some R&D tax credits in order to encourage R&D. Does that
influence the amount of R&D that you undertake and that you
might wish to develop in the future or are there other strategic
and historical factors which decide where you do your R&D
and how much R&D you do? Can this Government here in London
or in Cardiff influence that through such things as tax credits?
Mr Gardiner: Yes, I think if we
were in profit and we could take advantage of those tax credits
that would be good. It is certainly something that we welcome.
We have spoken to the Treasury and the DTI about that tax credit
system in the UK and, as you know, there was a consultation paper
that was issued last year. I think the system had been in place
for a year and there was a consultation. I think the arrangements
where we think we are now on tax credit is extremely positive
and we certainly welcome the latest initiatives on this front
by the Government. I think it will help to maintain a strong R&D
presence in the UK. We are committed here anyway, let us make
that clear. Ford alone—and again I have to differentiate
between Jaguar, Land Rover and Blue Oval but we spend on average
about £480-£500 million a year in R&D in the UK.
So it is very important to us. So if there are incentives like
this, such as tax credits, then obviously once we are back in
profit that will be another factor which supports our investment
here because obviously there are other markets around the world
where similar tax credits are available, in particular Germany,
which is an important market for us. It is also interesting for
Ford in that in terms of Ford Blue Oval we have a split R&D
facility of about 5,000 engineers at Dunton and 5,000 at Merkenich
in Germany, which is close to Cologne. So yes, tax credits are
an important element.
Mr Reinhart: Yes, we also do make
use of tax credits and of course we welcome that. That is especially
for R&D important, there is no doubt about that. What is also
important is, if I may reply to your question again, today it
is easier for SMEs (small and medium sized entities) to get grants
rather than bigger companies such as we are and this may be reviewed
somehow, not in total but somehow, especially if you talk about
R&D. It should be somehow equal treatment between bigger companies
and small and medium sized entities.
Q118 Hywel Williams: Could I ask
a follow up? One of the criticisms of the R&D tax credits
is their complexity but the Chancellor did move last year to simplify
all of this. I do not know if I can tempt you into any comments
on that process and whether it has had any effect on your decision-making?
Mr Gardiner: From our perspective
it has not had an impact on our decision-making in terms of our
investment here. As I said, though, it is an added incentive and
I think just looking at where we now seem to stand on the tax
credit system it does seem to be more simplified than it was perhaps
a year ago and obviously that is to the benefit. We have got a
much clearer indication of what is available to us and that obviously
helps our business case a lot more.
Mr Reinhart: I should comment
in general, not so much for me, about the tax credit system. In
general for each of the countries, including Wales and the UK,
Government should be very careful with inappropriate regulations.
This is, for instance, the German disease, that we have too many
regulations and too many rules and too many new laws and so forth.
That is very disadvantageous for companies and every Government
should be mindful to avoid all inappropriate regulations. This
is a very big issue, I think. This is a European thing, not just
one country in Europe.
Q119 Mr Evans: It happens here to
a great extent.
Mr Gardiner: Would you mind if
I just added to that point, because I think my colleague from
Matsushita has raised a very important element. I think it is
an important element not just for the UK but also for Wales. We
have spoken about maintaining a manufacturing base, maintaining
a competitive edge, not just in Wales or the UK but also in Europe.
I think the British Government has taken a strong initiative over
the past year or so in terms of trying to make the situation at
the European level much more focused around competitiveness and
competitiveness issues. We have a meeting with the British, French
and German Governments on 18 February to sort through some of
these issues. I think what we have been talking to the UK Government
and other governments in Europe about at Ford is really for a
need, particularly at the EU level, because in our industry most
of the regulations that severely affect us come from the European
Union level and from the Commission. What we would say is that
important though social and environmental considerations are in
the EU policy-making process, there does need to be an element
where the industrial or the manufacturing and business element
is taken into consideration as well. I would say that particularly
in the Commission's process of formulating policy there needs
to be a much stronger, much more independent assessment, a cost
benefit analysis of the likely implications of new policy. I think
what we are starting to see, which is promising, is perhaps a
stronger role there for the competitiveness council as well because
this is really a crucial issue. We find this a lot in the car
industry, that we have policy which is either poorly constructed
at the European level that leads to a lot of different ways that
that law is then transposed into national law or else we find
ourselves being pulled in different directions. So if we could
encourage a more holistic approach to the European policy-making
process, a more rounded consideration of the impacts of policy,
I think that would be something which would not only impact on
the UK but also on Wales.
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