UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1075-ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

trade and industry committee

 

 

reasons for success and failure in the UK automotive industry and lessons to be learned from the Rover Taskforce

 

 

Monday 26 June 2006

MR DAVE OSBORNE

MR JONATHAN BROWNING

Evidence heard in Public Questions 66 - 159

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Trade and Industry Committee

on Monday 26 June 2006

Members present

Peter Luff, in the Chair

Mr Michael Clapham

Mr Lindsay Hoyle

Mark Hunter

Miss Julie Kirkbride

Judy Mallaber

Rob Marris

Mr Mike Weir

________________

Memoranda submitted by Transport & General Workers Union

 

Examination of Witness

 

Witness: Mr Dave Osborne, National Secretary, Automotive Group, Transport & General Workers Union, gave evidence.

Q66 Chairman: Mr Osborne, welcome. Can I begin by welcoming you to the Committee, thanking the Union, through you, for the evidence that was submitted in writing in advance for this evidence session and asking you to introduce yourself, for the record?

Mr Osborne: Thank you, Chairman. My name is Dave Osborne. I am the National Secretary for the Automotive Group for the Transport and General Workers Union.

Q67 Chairman: Thank you very much indeed. I want to begin by asking you a very straightforward question indeed. What is your Union's view of the overall strength, overall health, of the car and commercial vehicle industries in the United Kingdom?

Mr Osborne: I think Britain has actually borne the brunt of a relentless drive to cut production costs in the industry, as car-makers are shifting output to countries, notably in Eastern Europe, like the Czech Republic and Slovakia, where labour costs are less than a third of what they are in Western Europe. I think it is well documented. We have seen a spate of closures of late. We had the tragic circumstances of MG Rover collapsing just over 12 months ago; just prior to that we had seen the closure of Brown's Lane, the Jaguar plant, and now it has been announced that, Peugeot at Ryton, the company are going to end production at Ryton from July 2007. All in all, it has been a bleak period for the industry, and six of the last eight car assembly plants in Europe to shut down or announce that they are going to shut down are in Britain.

Q68 Chairman: The Government, in a memorandum of evidence to us, emphasised the steady car production in the UK and painted a rather more if optimistic is the wrong word then at least less alarming picture of the situation than you just have. Can I just invite you to reflect on that?

Mr Osborne: I will quote, if you do not mind, in answer to that question; this is from the SMMT Monthly Statistical Review from May 2006. We have all heard the statements about car production being around 1.6 million vehicles, I think is the figure that is being quoted, which is about what it was 15 or 20 years ago. I think two things have happened since then. First of all, the total industry volume in the UK has grown. Secondly, if I may quote this, which I think gives an insight into where we really are: "Car manufacturing in the UK has been unsettled by high profile announcements of plant closures and job losses" MG Rover, Jaguar and Peugeot, to which I have referred. UK car output since April 2005 has been significantly affected by the demise of MG Rover, Jaguar and Peugeot. "The performance over the first four months of 2006" means that the "outturn was the lowest since 2001 and over ten per cent down on the level produced on average over the past five years." Output has fallen by 45,000 units, or eight per cent, compared with last year, and it is predicted that will fall further in both 2007 and 2008.

Chairman: Thank you. One or two of colleagues would like to pursue this in a little more detail.

Q69 Mr Hoyle: Obviously, I worry about the future of the car industry in the UK as well, but would it not be fair to say that workers in Portugal, Belgium and Germany also are worried about the future of their car plants, and some would argue that the UK car industry is doing better than most? I do not know what your views are on this, whether you have any feelings about it, that actually it is the components sector which is taking the real hit?

Mr Osborne: I think you just have to look at what has happened in the last 18 months. We lost over 1,000 jobs at Jaguar, we lost 6,500 jobs at MG Rover, we are about to lose another 2,300, if the company have their way, at Peugeot; that is just direct employment, taking no account of the components sector or even the service sector, which depend on the automotive industry for their livelihoods. You may argue that Germany is having a bad time. I do not see that. I am actually a part of the Ford European Works Council, so I do have some involvement at the European level. To be perfectly frank, I think the difference between Germany and the UK is that stricter laws and local ownership make it harder to close plants in Germany or France or Italy. The harsh reality of life is that we do not have a British car industry any more; we have a car industry in Britain.

Q70 Mr Hoyle: As the Chairman started off with, what about the commercial vehicles sector; in fairness, we have actually had an increase this year in commercial vehicles, I just wonder what your views are on that?

Mr Osborne: That is absolutely true. The commercial market has shown some buoyancy this year, and obviously that offsets anything that has happened in the passenger car sector, but, in terms of direct employment, the labour intensity is in the area of producing volume, and that is in the passenger car sector.

Q71 Mr Weir: We have been told that the growth in car sales is largely in areas such as Eastern Europe, China and India. If that is the case, is it not inevitable that car companies will concentrate on serving these markets rather than ones which could be called more stagnant, like Western Europe?

Mr Osborne: I think we ought to, first of all, try to analyse where the growth areas actually are. One of the arguments that we hear from most companies is that the growth areas are in China, where capacity is being increased, and in Eastern Europe. We are currently in a debate with Peugeot, where they are saying to us that they are putting capacity where the growth is. It so happens that in the Czech Republic and Slovakia, by 2010, there will be capacity to build 800,000, when actually the total sales in Central Europe, in 2004, were just over 109,000. I do not think it takes much to work out that the objective is to relocate where costs are much lower, about less than six euros per hour for a Slovakian worker, as opposed to round about €25 or €26 an hour for a British worker, and to import those jobs into the UK.

Q72 Mr Weir: You will accept the argument that they are looking to the future by building up production, say, in Slovakia, as Eastern Europe opens up; you see it purely as driving down costs so they can import these cars back into the UK and other Western markets?

Mr Osborne: I think if the argument is around capacity, in terms of the Peugeot case, the Peugeot case is not about cutting capacity, it is actually about increasing capacity. What they are doing is taking a workforce from what is a very profitable plant in the UK, and it made £25 million profit last year, and exporting those jobs to make even more profit in Slovakia, and then to import those cars back into the UK, from a position where the UK is Peugeot's third biggest market. The trade union demand, if I can say that, is that we do not believe it is unreasonable actually to build where you sell your cars.

Q73 Mr Weir: What I am trying to get at is, do you see the Slovakian factory being a good example in Central Europe; is it likely to turn itself, if you like, to export to Eastern Europe, as that is a growing market, where many of these countries are just emerging now in a very low consumer market but are likely to be greater consumer markets in the future?

Mr Osborne: If I say to the Committee that by the end of 2006 there will be 13 new assembly plants in Eastern Europe, and that could be either engines or cars, with the best will in the world, I do not see market growth in Eastern Europe of that proportion, so I would ask you just to work it out for yourself.

Q74 Chairman: Can we just be clear whether or not you think there is overcapacity overall, over the whole global automotive industry?

Mr Osborne: The answer is a clear, unequivocal, yes. I am sure Mr Browning, if you ask him a bit later on, will answer along these lines; the capacity produced is around 60 million vehicles, and we have about 40 million customers.

Q75 Chairman: Peugeot, you say, are increasing their capacity; why would they be doing that?

Mr Osborne: They are, indeed. They have an objective of reaching four million global production units. At the moment they have not achieved that. I think it is true to say that when they took that decision four million was a firm objective. I think, in the last four or five years, outside of the UK there has been what I would call a stable market in Western Europe. With the exception of the last 12 months, the UK has probably been an exception to that, in terms of market growth. Since that time, obviously, the UK, which is their third biggest market, that is now likely to fall, and so far this year the market is down about just under five per cent over last year. That is obviously having an impact on sales. Having said that, they sold 280,000 units in the UK last year and produced about 100,000 in this country, so there are still major opportunities for the UK.

Q76 Chairman: You admit there is overcapacity internationally. You say also, in your second memorandum to us, numbered ROV 17, I quote: "the enlargement of the EU and the rise of China and India as manufacturing bases have fundamentally altered the economics of the automobile sector." If the economics have fundamentally altered, to what extent can we hold back that tide in the UK?

Mr Osborne: In terms of the UK, we recognise we cannot compete on cost alone. I think, in terms of any decision for where companies locate, cost should not be the only consideration. If you focus only on particularly labour cost, which is where most companies are heading, I do not think that is a good, long-term strategy, for this reason, that they move to Slovakia and in ten years' time Slovakia develops and they are on a par with the UK, and multinational companies will always find somewhere cheaper to produce motorcars, or any other commodity which is designed to maximise their profit. In that sense, during the period of the emerging markets, we adopt a simple philosophy and that is to try to make our plants, and we have done that in partnership with employers, as efficient as we can. That does not mean necessarily that we have to cut wages and conditions of employment. My Union has no intention of joining what we call the race to the bottom. However, we are capable and have indeed, you might recall, last year, that the Dagenham plant won £200 million worth of investment in the new diesel engine at Dagenham, which secured the plant for the long term, created 600 jobs and safeguarded the other 1,500. That was done in partnership between the company and the trade unions, who delivered $16 million worth of savings without impacting on terms and conditions of employment. To be perfectly frank, the answer to your question is simply we are attempting to, quoting my General Secretary, "stay in the game," if you like. I think that is the fairest statement I can make, stay in the game to give some of these other countries the opportunity to emerge properly.

Q77 Chairman: You think there are still volume areas where we can stay in the game, or are you saying we are looking at hi-tech, higher-value, knowledge-intensive sectors?

Mr Osborne: Absolutely, there are volume areas where we can stay in the game. Vauxhall, Ellesmere Port, is one of them. They produced 186,000 vehicles last year, if I recall; that is close to a record, if it was not a record. Land Rover itself produced record sales last year, SUV. Peugeot is considered to be still a volume car producer and with the right investment, the right product, can be once again.

Q78 Mr Clapham: Mr Osborne, a little earlier you made the comment, which I think fits well, the car industry in Britain rather than a UK car industry, and the two companies which you have just referred to, Vauxhall and Land Rover, we are talking in terms of GM and Ford. Has the Union done any research into why it is that, companies in Britain which are producing cars, there are some which are much more able to cope with the changing situation than others? That is true worldwide, but in the UK we have seen particularly that some companies are much better than others, that some companies have got better production rates than others; is there anything in research which has been done by the Union which indicates why that is?

Mr Osborne: I think individual employers would comment on their own circumstances which prevail at the time, but, in terms of how companies cope with change, and it is difficult change, in fact, I can give you an example. Land Rover is successful. I hope, in two years' time, we can turn round and say Jaguar is back to break-even or profitability. Aston Martin is becoming a company which we know will grow. If Ford, for example, took a decision, for whatever reason, that, let us just say, for the exchange rate problem or anything like that, they decided to build where their big market is, in Jaguar and Land Rover it is effectively, outside of Freelander, the US, and you have got this exchange rate. If they did that, it would not be the only consequence, because Ford of Britain, Blue Oval, actually produce engines for Jaguar and Land Rover, so there are consequences. Really it depends on what your business footprint is, where your markets are, what the cost bases are, and I think each company has a different view of that.

Q79 Mr Clapham: Are there other factors as well, do we see changing trends, for example, we saw the SUV come on, and some of the companies here in the UK seem perhaps to come into the SUV market later? There is the aspect of design, we see designs changing quite rapidly. Is there an aspect here of where some of the companies which operate in the UK probably come to accept changing trends late in the day?

Mr Osborne: No, I do not think so. In reality, the competition that we face, we are talking about the UK now, the threat has been there for some considerable time. Everybody has talked about China and the growth in China, the capacity that is being poured into China. In the short term, I think that the threat is Eastern Europe and not China, simply because of the proximity of Eastern Europe to Western and Central Europe. When you are talking about rates in Slovakia of six euros an hour, I had the privilege of visiting the Ford plant where they do the Transit van, in Turkey, last year, Otosan, which makes an inordinate amount of money for Ford Motor Company in Europe, they pay two euros an hour in that plant. We have a plant in the UK, in Southampton, which produces Transit vans, and, of course, unless we become more and more productive then, the cost of creating the business, it will gradually become irrelevant and you will find more and more sourced elsewhere. I think every multinational company in the UK, with the exception of Toyota, has said, quite clearly, that they intend to increase their production in Western Europe. I think everybody else is basically looking to take advantage of the low costs which exist not a million miles away.

Q80 Mark Hunter: In your evidence submission, you state that, when faced with closure decisions, multinationals will always opt to close plants in the UK rather than elsewhere, because, as you say, it is cheaper and easier to close a plant in the UK. Is it your contention that this is so regardless of productivity differences and whether or not the company has recently invested capital in the plant, or the age of the models produced by the UK plants, and could you say something more about how you think the UK compares with the rest of Europe in those specific respects?

Mr Osborne: That terminology has long been a phrase of ours, that it is easier, cheaper and quicker to sack people in the UK, and we stand by that. No doubt, Mr Browning, when he gives his evidence, will deny this, but just recently we have been the subject of a reduction in volumes in Ellesmere Port, the most improved car plant in Western Europe, and I think that is well documented. I think the company, if they are honest, will admit that. They might argue there is still a cost differential, but they have just taken off a shift, sacking 900 workers. The Chief Executive Officer of General Motors Europe, when asked why, was quite blatantly open and said, "It's easier to take a shift off in the UK than it is anywhere else." It is a fact of life that Western European countries have stricter legislation. Their labour laws are a lot less liberal than ours. You can go to Germany, where you have to get the agreement of the works council; the procedure takes about 12 months, as opposed to 90 days, in the UK. You have to ask yourself the question, putting Slovakia to one side for a moment, would Peugeot close a plant in France, if it were easier and cheaper, and I do not think they would; the fact that it is not a domestic company, in that sense. We find that Jaguar, for example, closed Brown's Lane, and that took three months. If that plant had been in Germany or on the continent, within the Constitution of the German nation, they have legal rights to agree or disagree with company decisions.

Q81 Mark Hunter: It would be fair to say that, regardless of productivity and investment in the UK, your view is that there is an inbuilt disadvantage?

Mr Osborne: Yes, absolutely; without question.

Mark Hunter: That is clear enough. Thank you.

Q82 Chairman: You do not buy the argument that although it is easier, cheaper and quicker to sack people here the corollary is that it is easier, quicker and cheaper to employ people here as well?

Mr Osborne: I actually heard that argument, funnily enough it was on the day I visited Vauxhall when they announced the shift off, and the statement was made by the Chancellor of the Exchequer, and, no, I did not agree with the statement, which says the flexible laws that we have mean that there are more people employed now than ever there were. That is true, but I think we have to look at the harsh realities of life and the harsh realities of life are that quality jobs in manufacturing have disappeared throughout the UK, with 800,000 jobs lost in the last nine years in manufacturing, to be replaced by part-time jobs in the service sector. If you count on a one-for-one basis, there are actually more people employed now than there were. That was an expression, by the way, that I heard in the 1980s, first, from a previous Prime Minister; she is still around.

Q83 Chairman: You said that Toyota are planning to expand production in Western Europe?

Mr Osborne: So they say, yes.

Q84 Chairman: Why?

Mr Osborne: What we have seen actually in the last 20 years, whilst we have seen some companies moving out, we have actually seen the Japanese moving in, and I think that begs the question why would they do that, why would they not, like the rest, relocate to Slovakia or elsewhere? They came in during the eighties and early nineties when, for Members here who will recall it, there was an EU quota on Japanese cars sold in the EU and that was ten per cent. Actually, the reason why Toyota and Nissan and Honda came to the UK was to produce in the UK really to get round the legislation which existed at the time. Toyota appears to be on the verge of becoming the number one car maker in the world. If you look at the strategies from the Japanese companies, particularly Toyota, and their successes, and look at the strategies associated with other major companies, Toyota have achieved it all by organic growth. They have not bought companies, as have the likes of Ford and General Motors, and that is the success of the Japanese, in one respect; the success of their relationship with their suppliers is another.

Chairman: We could explore that at some length, but I think we must move on. Mike Weir wants to ask a supplementary question.

Q85 Mr Weir: Does it make a difference in the types of models they are building? I notice that Toyota, for instance, are going into partnership with, I think, Citroën and someone else, to build a small car; does that a difference as to where they would put their plants?

Mr Osborne: Toyota have gone into partnership with Peugeot/Citroën actually, in Kolín, in the Czech Republic, where they have built a plant. There are actually three models, same platform, one is a Citroën, one is a Peugeot and one is a Toyota. Yes, there is shared technology, shared development, shared design; all of that obviously is done to share costs, if you like. We are not opposed to joint ventures, we encourage joint ventures as a way forward, but certainly the arguments in the Czech Republic, I think, are exactly the same arguments as they are in Slovakia; it is Eastern Europe, it is a low-cost country. Peugeot are already putting investment into there; that was done with a joint venture with Toyota. Of course, those vehicles which are produced there, some of them are finding their way into the UK, increasing the import penetration; round about 84 or 85 per cent of the total market is imported vehicles, not produced in the UK.

Q86 Rob Marris: First of all, Chairman, I should declare an interest. I am a member of the Transport and General Workers Union, which I am proud to be and I have been for many, many years, as Dave and others will know. In terms of imports and exchange rates, and so on, there is the question of the pound/dollar rate, which has changed a lot recently, a question of where the yen is at, or even the Renminbi in China, in terms of the artificial (layer ?), but the big question perhaps for us at the moment is the euro, in terms of British manufacturing overall, not just the very important automotive industry. To some extent, employers, the manufacturers can hedge against that, some perhaps more successfully than others. What is the Union's view on the euro at the moment?

Mr Osborne: The Union's view on the euro is we do not have one. There are different views; we have not settled on a firm policy at our conference yet. We have been debating it, like everybody else has, I think, for ages and ages. Generally we support the view that the people should decide, if I can say that. In my earlier days, I was an ardent anti-marketeer, if I can call it that, but, like everybody else, we grow up a bit and you have to take more responsibility for your actions. In the role that I have played, I have become more and more of the view - and this is a personal view and not a Union view - that we should join the euro. I say that for a couple of reasons really. One is, I have seen some companies, by the way, unfairly, and I include BMW in that, use the euro as an excuse, to sell what was the Longbridge Plant, and that was a big part of their argument, while, at the same time, staying extremely silent about the UK being their third biggest market and all the benefits they were getting in reverse from selling 80,000 cars, or whatever it was at the time, in this country. We have seen exchange rates mean that it has been more expensive to produce in the UK, and we have seen, particularly in the components sector, I might add, a substantial number of jobs being exported as companies seek low cost and more profit.

Q87 Rob Marris: I want to move on to skills and innovation and I am reminded, correct me if I am wrong, Dave, I think several years ago you had more than one Rover nicked from outside your house because there was a fault with the alarm, which we will not go into now.

Mr Osborne: I remember that, yes.

Q88 Rob Marris: That suggests to me that there was a bit of a problem with product innovation on that aspect of that market. It is difficult for a government, I think, to do a lot about innovation. What about skills training, and particularly, for example, what has been mooted in some quarters, a statutory training levy?

Mr Osborne: We supported the idea of a levy, I do not think that is any secret.

Q89 Rob Marris: How do you think that would assist the automotive industry in the UK?

Mr Osborne: There are two things. There is the Manufacturing Forum which has been set up, which we welcome. There is obviously the Automotive Academy which has also been set up and which we support, and I am a regular participant in that. We have developed as well, as a result of legislation by the current Government, the role of the learning reps in the workplace, which has been exceptionally advantageous in getting people involved in expanding their skills. Like I say, we were firm supporters of the levy for this reason, that unfortunately in the UK our belief is that companies take a very short-term view, in terms of profitability, cost to employer, and we have not seen from the employer, although there will be examples which each employer can quote, and the Ford CEME building is one of them, in Dagenham, by and large, the investment in training to enhance the skills required for work, and that is what there should be, in our opinion.

Q90 Rob Marris: What about innovation; is there anything a Western capitalist government, like ours, can do about fostering innovation? We are going to get on to Rover more specifically later, but it is apparent that the Rover models were pretty long in the tooth and that was likely to be one of the explanations why they ran into difficulty. Is there anything, realistically, a government can do to foster innovation in the automotive industry?

Mr Osborne: One of the things that we ought to look at is, you know, this industry has sort of a stigma, to a large degree, it is not a hi-tech industry that appeals to people and it is everything but that and more, and it is a real paradise for introducing new technologies, innovation, and you have to do that in order to compete with the countries that are developing. One of the disadvantages that we have had in the UK is we have had a well-established car industry for the last century and a lot of the sites are actually brownfield sites rather than greenfield sites, and it is not as easy to re-equip the brownfield sites as it is for a greenfield site. That is one of the consequences. In terms of car plants in the UK, we have seen Burnaston, in Derby, we have seen Nissan in Sunderland and we have seen Honda in Swindon, and outside of that I cannot think of any more new sites we have seen in the last 15 years. We are starting to build Aston Martins at Gaydon rather than the old plant in Newport Pagnall, but that is in its infancy; there has been investment but not at the level that we think is required to bring this industry towards the 21^st century.

Q91 Rob Marris: Should we be changing planning laws then? Swindon, Burnaston and Sunderland all seem to have been pretty successful. Longbridge, as an old plant, was not. Should we be looking at changing planning laws?

Mr Osborne: That was more to do with investment versus no investment. The reasons for the demise of Longbridge, both inside and outside the public sector, were years of underinvestment and that goes back to the sixties and the seventies.

Rob Marris: I think we are going to come on to that later so perhaps we will leave that for now.

Chairman: The quality of the product sometimes has something to do with it in the early days as well, but maybe investment also.

Q92 Mr Hoyle: I am not convinced by a single currency, and I think probably the argument ought to be made that it was very easy to use the currency as an excuse, but the reality is, and if we look at the Germans with the mark, and we look at the Japanese with the yen, they had the most successful industry, with the highest possible value of their own currencies, so actually it is about investment in plants rather than worrying about the currency, is that not fair to say?

Mr Osborne: Yes, it is.

Q93 Mark Hunter: I want to ask a question about the closure of individual plants. We have noticed that a feature of some of the recent closures, such as Ryton and the TVR plant in Blackpool, has been that the plants themselves were quite old. How important a factor do you think this is in the closure decision, and, more importantly, which do you think is the more important, the cost of upgrading plants or the constraints of expansion on old manufacturing sites?

Mr Osborne: Let me be the first to give you some good news. The TVR plant in Blackpool is not closing; it is moving, still in Blackpool. My Union, after two weeks, or three weeks, of campaigning, with the local authority and with the company, have persuaded the Russian oligarchy to retain its presence in Blackpool, which is pleasing me, as it saves nearly 300 jobs.

Chairman: That does not answer Mr Hunter's question.

Q94 Mark Hunter: I was making the general point that I accept what you say about the TVR plant in Blackpool but do you think that, the closures, where an old plant is in question is that a significant issue, and what do you think is more important, the cost of upgrading the plant or the constraints on expansion on old sites?

Mr Osborne: We are confronted, in Coventry, and I do not know if this will answer your question particularly, with this argument, it would be cheaper for Peugeot to upgrade Ryton than it would to be investing in opening a second plant in Slovakia on a greenfield site. The cost of opening the plant in Slovakia, a new plant, is actually €100 million more than is required to refurbish Ryton, and some of you might recall that three years ago they submitted an application for grant aid to do exactly that. The grant aid was actually agreed and then Peugeot decided, "Well, thank you, but no, thank you; we're going elsewhere" at a higher cost.

Q95 Mark Hunter: What happened in-between in that period to make them change their mind, in your view?

Mr Osborne: The only conclusion that we can come to is that they believed that the 100 million difference in euros as a result of the investment would be more than offset by the saving in labour costs over a period of time, notwithstanding that they have underestimated the cost of exiting from the UK.

Q96 Mr Weir: Clearly, the Union had a significant impact on TVR in Blackpool, as you were saying, but can you tell us what you think should be the role of trade unions in decisions on the future of individual plants in the UK and what should be the role of government?

Mr Osborne: First and foremost, I have tried to explain to you that, in terms of what we try to do, in announcing productivity, we have done a lot, I think we have got some of the most flexible working practices anywhere, whether that is working time corridors or whether that is more flexible working. I think we have got those and those can be pointed to in different locations. In our view, the UK is deemed to be poor in productivity. I do not accept that argument. Nissan actually is the most efficient plant in the world. Jaguar in Brown's Lane was actually the most efficient Ford plant across the globe, but still they closed it, in breach of all the agreements. I think that we are efficient. I think it is fair to say, we cannot compete on cost with the likes of Slovakia.

Q97 Chairman: It is a question on the role of the trade unions?

Mr Osborne: I am just trying to say to Mr Weir that our role then is to understand the issues and try to bring that particular plant to as efficient a point as possible in order to give us a chance, recognising that we will continue to campaign with companies around the reasons why they ought to support that plant. We will be having that debate with Ellesmere Port in not too long a period of time.

Q98 Mr Weir: If a company is determined that pure cost is the determining factor, is there anything a union or government can do to deal with that situation?

Mr Osborne: Obviously, if a company is going to make a decision they will make a decision. We see, as I have already said to the Committee, cost alone is not a real reason for a decision. There is the whole question of logistics, markets, business footprint, all of that, I think, is a long-term strategy that will continue and we will continue to try to persuade companies to look at it. We have done that with Peugeot. At the moment we have not convinced the company. We will be meeting with the company next week to pursue that argument. At the end of the day, employers quite legitimately demand profitability. If we deliver it, which we do, certainly in the case of Peugeot, on the basis that the UK is their third biggest market, we do not think it is unreasonable to argue that they should maintain a footprint in the UK, and we will be saying the same to General Motors, no doubt, if we get to that position a bit later on.

Chairman: Let us try to rattle through some of your specific ideas.

Q99 Mr Clapham: Mr Osborne, one of the things which the Union is saying is that where a company has taken a grant of public money that company, if it starts to divest its investment in an EU company or the UK generally, then if that disinvestment takes place within a period of ten years after the grant has been given they should repay that grant. How effective do you think that would be, given, as you have described, the very competitive situation facing the car industry?

Mr Osborne: I think one of the reasons why Peugeot have opted for Slovakia is the very generous amount of aid that they have got vis-à-vis the UK, that is a fact. Jaguar, for example, received £95 million of taxpayers' money between 1995 and the closure of the plant, which turned out to be, in our opinion, you invest, you support that investment through grant aid and then they close the plant. I think, and my Union thinks, that is a gross abuse of taxpayers' money, to be honest with you.

Q100 Mr Clapham: We are talking about better embedding the company in the community?

Mr Osborne: We are, and we are talking about penalties. I think we use a phrase, to reward the good investor and penalise the bad.

Q101 Mr Clapham: The next thing that you suggest is that there should be a government-brokered review of every significant closure that involves more than 250 workers. It seems to me that what you are basing that on, and you will be able to put me right, is the colliery review procedure which operated in the 1980s, where when a colliery was coming up for closure then there was a review board to which the case could be taken and, of course, the union could draw on the support of academic exercises that were done to be able to support their position. Do you feel that, given that the coal industry was seen to be a strategic industry, every closure involving 250, given the changed circumstances, is a strategic issue?

Mr Osborne: The issue at present is that we cannot get into a review or otherwise with companies. It is common knowledge that Peugeot refused to release information that they are obligated to under the law, the Information and Consultation Directive, they still fail to do that, by the way. All they have submitted is a cost proposal, Slovakia versus Peugeot, which question I could have answered in three sentences: why are you moving, because it is cheaper to do it. The harsh reality of life is we are not getting into a meaningful or constructive debate with employers, and it affords them the opportunity as well to convince us of their case. As yet, we have not been engaged in that dialogue. I would not like the Committee to be under the impression that we oppose every closure, we do not. I have negotiated quite a few closures, which, in the Union's terms and in our view, needed to close in the interests of the whole. We have had plants with Ford, the Stamping plant at Croydon, there was a plant at Borehamwood and another plant in the South East of England which we recognised could be closed because there were opportunities for consolidation without impacting on people's terms and conditions of employment, and we do that. We have yet to hear from Peugeot, I know I keep raising Peugeot but it is obvious, the case for closure, apart from it is cheaper to build in Slovakia; well it is cheaper to build in Malaysia, in India. Ford are closing plants in Mexico at the moment because it is too expensive, so there needs to be a proper review, in our view, with proper, expert advice, in order to support the process, and that is really what we are arguing for. The Directive came in last year for Information and Consultation, which we believe should be total disclosure of the information; that has not happened, is it £75,000 fine for non-compliance? I do not think Peugeot are going to stay awake at night worrying about that. Basically, our members are not getting the entitlements that they should get and we think a review would enable us to participate fully, as we have said in the document, in probing the merits or otherwise of the company's arguments.

Q102 Mr Clapham: Have you had any response from the DTI on these proposals?

Mr Osborne: On the proposals that are in the evidence, no, we need to pursue those with them.

Q103 Miss Kirkbride: Just going back, a year ago now, to the Rover demise and the Task Force, what do you think was the overall impact of the Task Force, what was the best thing it did, what was the worst thing it did, or the least perceptive thing that it did?

Mr Osborne: On the Task Force, we have submitted written evidence, in terms of the role that they played, and the Union has spelt out clearly, and we had senior people from the Union involved with the Task Force in order to assist the process. Five years earlier there had been some movement in terms of the supply base, because of what had happened in 2000, so I think the demise in 2005 did not have the same impact in terms of the supply base as it may have done five or six years earlier. As unions, we were involved in pensions and employee car purchase issues. Advantage West Midlands, as I recall, were looking after the interests of the West Midlands and tried to ensure that MG Rover continued in business or that alternative manufacturing activity continued, and I know that they played a role in continuing some of the suppliers by the payment of wages, if I recall, for a short period of time. There was a package of measures which I think, in overall terms, was underspent by about £25 million, if I remember right. In terms of the Task Force, rather than task forces being set up at times like this, we are more interested in a debate about a coherent manufacturing policy which limits closures and the consequences to communities, whether it is in the West Midlands or anywhere else. It did its job that it was appointed to do.

Q104 Miss Kirkbride: I was going to ask you some questions about Ellesmere Port and Ryton, but just one other question which would be pertinent to the Union, what about the training which was offered by the Task Force, how do you rate that?

Mr Osborne: There is a perceived view, and I use the word perceived because it is not my view, that the Task Force was successful in terms of moving people into other employment. Our information is simply this, that less than 50 per cent of our people who lost their jobs are employed today, that is 14 months down the road, and of those that are, 90 per cent of those are in jobs which pay much less and their conditions of employment are much worse.

Q105 Chairman: I am sorry, we are going to have to truncate things there, because we are quite badly over time already, but we are very grateful to you for your evidence, Mr Osborne. There was some good news lurking in-between some of the bad news, I think, in your evidence, was there not; it is not all bad, is it?

Mr Osborne: We have not got LDV yet.

Chairman: On that cheerful note, Mr Osborne, we will draw this session to a conclusion. Thank you very much.

Memorandum submitted by General Motors

Examination of Witness

 

Witness: Mr Jonathan Browning, Chairman, Vauxhall Motors Ltd, General Motors, gave evidence.

Q106 Chairman: Mr Browning, welcome. I am sorry to have kept you waiting a little bit, but you were in the room and you heard the evidence session; we had to truncate it, as it was. I am grateful to you for your patience. Thank you for your written memorandum, which I have read with great interest; admirably succinct and to the point. Can I ask you, for the record, as I always do, to introduce yourself?

Mr Browning: My name is Jonathan Browning. I am Chairman of Vauxhall Motors.

Q107 Chairman: Thank you. Tell us about the worldwide situation, the same basic question I asked our first witness this afternoon; is the situation, of worldwide overproduction, overcapacity, better or worse than it was a couple of years ago, and what is GM doing about its own part of that problem?

Mr Browning: I think it is very clear and you can look at different statistics from different perspectives around the world, but I think one generally accepted view of the overcapacity within Europe, at least, is that there is in the region of 20 to 25 per cent overcapacity for the industry in Europe, so that is a very substantial margin of overcapacity. The definition of overcapacity is always a little difficult in terms of precise data, but it is, I think it is fair to say, a very substantial overcapacity. One of the key dynamics which are having to be managed today is that the Western European demand is largely stable; as you have already heard, growth is very much a focus within Europe, in Central and Eastern Europe. On the one hand, you have most of the production focused in Western Europe and you have most of growth in demand in Central and Eastern Europe. If you take just the simple fact that you would need demand to be growing in the region of eight to ten per cent per year for the existing installed capacity to be fully utilised, because of ongoing productivity improvement, you can see that is a situation which leads to overcapacity and growing overcapacity over time. There is overcapacity in the industry, focused largely in Western Europe, less so in Central and Eastern Europe.

Q108 Chairman: And America?

Mr Browning: If you look at the global picture then I would say the data becomes less transparent, in terms of really apples for apples comparison. In general terms, you would say, in North America, including Canada and Mexico, you have got overcapacity, in Latin America and Asia Pacific some degree of undersupply versus the potential demand in those markets, although when you come to Asia Pacific individual markets you have very different situations. For example, I think you are all very well aware of the tremendous demand growth in China and the race to install capacity in China.

Q109 Rob Marris: I have to say, being perhaps somewhat simplistic, on this side of the Atlantic, it does look as if GM is losing shovel-loads of money in the USA because it is producing the wrong product at the wrong quality and we are being asked to pay the price in Europe for that. What is the response of GM to that?

Mr Browning: That is a pretty broad question and I will try to keep the answer as short and precise as possible. Let me put the position for General Motors into the North American situation and in Europe. In North America, you are right, last year there were some very substantial losses in GM, in North America specifically, and there has been a range of actions put in place to address those. Those actions are addressing the situation specifically in North America. If you look at General Motors in Europe, our history of financial challenges, underperformance, actually is somewhat longer than in North America; indeed, for General Motors in Europe, we have lost over $3 billion over the last six years, so an extended period of financial losses for the company in Europe. As a result, there have been a number of actions taken over a period of time to address the losses specifically within Europe. I am pleased to say, those actions are beginning to show progress and in the first quarter of this year General Motors Europe actually reported positive net income for the first quarter of the year, for the first time since the year 2000. Whilst it is true to say that in North America there are financial performance challenges, it is certainly not true to say that in Europe we do not have our own share of those and do not have our own issues to address, which is exactly what we are doing.

Q110 Rob Marris: We are going to go on to Ellesmere Port, as you might imagine, but just sticking on the European level, you are back in profit for the first quarter of this year, GM Europe; how much more cutting back do you need to do in Europe, if any?

Mr Browning: The answer there is very simple. Until we have a sustainable business in Europe, we need to keep rebalancing both our revenue generation and our cost management. Over the period since late 2004 we have put in place a very wide-ranging restructuring which actually has resulted in a substantial shift to our structural cost base in Europe; that is a programme which is ongoing. At the same time, we are looking to improve the revenue generation across Europe. I would describe the task as partially complete but still a lot to do really to get to what I would call sustainable profitability for the business in Europe.

Q111 Rob Marris: Restructuring is one of those, to me, as a politician, somewhat elastic words. Do you anticipate further cutbacks in Europe, as part of this restructuring which you say is on track, in terms of further lay-off of staff, bailing out of Fiat, or whatever?

Mr Browning: If you talk about the very specific programme that we announced, as I said, in late 2004, at that time we said we needed to shed in the region of 12,000 jobs in Europe; the majority of those were in Germany and to date we have completed around 10,000 of those. It was a programme that ran through 2007 and so about 10,000 of those employment changes have already occurred and we believe, with commitments that we have currently through the course of this year, we are at about 95 per cent completion. Whilst the term may be somewhat vague, the actions that we have been taking since 2004 have been very specific and we are well on track to deliver it.

Q112 Rob Marris: These things sometimes are somewhat dialectical and they can change as they go on. Your aim was, I think you said, 12,000 cuts by 2007. You are most of the way there, both in terms of numbers and in terms of the date. Do you think you are going to increase that 12,000; one keeps it constantly under review, I am sure?

Mr Browning: As you know, the world changes, it is a very dynamic place and so the goalposts do not always stay in the same place. I think it is true to say that any business, irrespective of whether it is in the automotive sector or any other sector, has to keep evaluating the state of the business and make the appropriate changes, given the market environment, given its success in that marketplace and depending on where the market is focused, in which part of the world. Whilst there have been some very specific phases of restructuring and change going on for General Motors in Europe, I foresee continuous evolution, continuous change of our operations over time. You will not get to a point where you can say that the job is complete.

Q113 Rob Marris: Does that mean continuous job losses in Western Europe then?

Mr Browning: I think it is too easy simply to say one relates to the other. If you talk about what is happening for General Motors in Europe today, as I say, there was an announcement of a programme to adjust 12,000 jobs in late 2004; that is under way. We continue, obviously, to try to match, as best as possible, our production operations with our demand footprint and we will see how the future develops as we go forward.

Chairman: I should have said, Mr Browning, before I declared the session open, how grateful we are for your willingness to come and talk to us. In other words, you are taking some difficult decisions at present and your willingness is very much appreciated, and I should have put it on the record earlier. We want to turn now specifically to Ellesmere Port.

Mr Hoyle: I am just looking at some of your production figures for Ellesmere Port; very successful. Looking at the UK sales for GM, very successful as well; in fact, would it be right to say there are 415,000 vehicles sold in the UK? If that is the case, and you produced 280,000, GM has got a very good market in the UK. I just wonder, I have got the UK figures, 415,000, can you give me the figures for Belgium, Poland and Germany?

Chairman: Off the top of your head.

Q114 Mr Hoyle: I would expect you to know this, yes?

Mr Browning: I would be very happy to provide those figures for you. I cannot actually do that off the top of my head. I think what it is important to understand is that when you look at the context of General Motors' production operations in the UK, both at Ellesmere Port and in Luton, because we have the two manufacturing operations, those operations account for around 16 per cent of the total car and light commercial vehicle production in the UK. Our sales, as a proportion of the total market, are, in round numbers, 15 per cent; so, in terms of our share of the manufacturing operation in the UK, it is approximately balanced if not slightly above our sales share of the operations in the UK.

Q115 Mr Hoyle: Let me put it another way. Okay; Poland, I do not believe you sell as many GM cars, and without knowing the figures I think we can both agree on that. I would think it is substantially higher in the UK, the number of cars bought, and I think it would be fair to say, for Belgium, that you sell a damn sight more cars in the UK than in Belgium. Germany, the question is out, so I look forward to you supplying the figures. Of course, the other figure which would be interesting is how many cars were actually procured by the UK Government, using taxpayers' money? I think, at the end of the day, the responsibility has got to go both ways. We always come back to this, that you have done very well out of Government in support previously, with the new model which was launched at Ellesmere Port; we have taken a lot of pain already with Luton in the past. It does not seem so long ago that GM was coming before this Committee explaining the rationale behind Luton, "We've got to use Ellesmere Port, this is the future of the car production for GM and its presence in the UK," only to find that you are taking off a shift, and I do not think it is very good. I think the UK public are very responsible in supporting your company. I think the time has come to see a little bit more support coming from GM with the promises which were made four and five years ago. I just wonder what message you have got for those workers who are losing their jobs at Ellesmere Port?

Mr Browning: Let me step back. First of all, 16 per cent share of total production in the UK is, I think, a very credible performance when we sell 15 per cent of the total market in the UK. I think the Committee would recognise that is a substantial and, very importantly, a long-term commitment to the UK. Vauxhall has been present in the UK since the beginning of the 1900s, 1903 is when the company was established, and we have a long history of participation in the UK industry. The UK is the fourth largest market for GM worldwide, so, irrespective of Europe or the rest of the world, the UK is a very important market for GM. That is why we are looking to maintain our manufacturing operations in the country, as long as they can be competitive, and I think that is the real challenge for all of us, how to make sure we sustain competitiveness of this manufacturing base in the UK. That is something that we are working very hard to achieve, working very hard with all of the relevant stakeholders, whether that be local development agencies, national government bodies or our individual partners, whether it be trade unions or our own internal groups, so a lot of effort to maintain the manufacturing base that we do have in the UK.

Q116 Mr Hoyle: Would it be fair to say, and I look at Lancashire Police, that you have a huge volume of Vauxhall cars, they operate Vauxhall cars and I am very pleased to see that? Do you believe that if production of GM cars did not continue in the UK we ought not to be procuring cars that are not produced without a plant in the UK?

Mr Browning: If you look at both the retail and the fleet sectors of the UK market, and what you are talking about here is the fleet sector, Vauxhall has been very successful in the fleet market and, in fact, is market leader in the fleet sector, so our focus on fleet customers is very important to us. We do think, by being present in the UK as a manufacturing organisation, that does show a level of commitment to the economy, a level of commitment to the economic well-being of the country which is positive; that is part of our reason why we would like to maintain, if at all possible, a competitive manufacturing base in this country.

Q117 Mr Hoyle: Those are very hesitant and very carefully crafted and chosen words; what I would say is have you got a long-term commitment to Ellesmere Port and to Luton for the future? Crafted words are very good but the reality is, what we really want to know is, are you 100 per cent behind both plants, or is the writing on the wall, there really is not a future at these two plants?

Mr Browning: My answer is very simple. We are committed to manufacturing operations in the UK, as long as they remain competitive. It is, I think, the duty of all of us to make sure we do everything possible to maintain that competitiveness.

Q118 Mr Hoyle: What are you comparing the competitiveness with, the US, the UK, or some third world site?

Mr Browning: First and foremost, the competitiveness is within the Western European arena, but, at the end of the day, this is a global industry and global choices and decisions have to be made, in terms of manufacturing and sourcing footprint decisions. Ultimately, it is a global industry with global dynamics affecting that industry, but right now our competitiveness has to be, first and foremost, in a European context, and that is the focus of the operations that we have in place.

Q119 Mr Hoyle: Have you reached that in the UK yet?

Mr Browning: No. Maybe coming back to the discussion about Ellesmere Port specifically, Ellesmere Port had the third shift taken off because it is the highest-cost production operation for our Astra plants in Europe. Whilst it is the highest cost, it was always at the greatest risk; therefore, when there had to be a decision to take off a shift at an Astra plant, because Ellesmere Port was the highest-cost plant, it was the plant with the shift to come off.

Q120 Mark Hunter: My question was about the operating costs specifically at Ellesmere Port, and how they compare with other Astra plants, and you have just said they are the highest. Would you say, briefly, what the specific factors are that make production costs at Ellesmere Port the highest, compared with other Astra sites?

Mr Browning: I am not able to go into the specifics of the numbers, as I hope you will recognise they are commercially-sensitive numbers, in terms of going into a line item detail. Let me say, however, that there are a number of elements that give the UK operation some specific disadvantages.

Q121 Chairman: If I can intervene, just to help. The purpose of this investigation is to find out what Government can do to maintain the competitiveness and to help the UK manufacturing sector, so that may help you shape your reply. We do not want the details of your finances, just what we can do actually to make the environment better for you and your competitors?

Mr Browning: Thank you. I would say there were three areas, in particular. One is in the areas of energy costs, so, for example, the energy costs that Ellesmere Port specifically are facing this year are in the region of 30 to 35 per cent higher than the energy costs for last year, so a tremendous surge in energy prices into UK manufacturing. This is not unique to Ellesmere Port, it is not unique to the automotive sector, but it is something that we are facing more aggressively in the UK than we are in other European markets; so energy costs. Secondly, clearly, by its geographical location, the UK faces some disadvantages from a logistics point of view. We would calculate those on an annual basis to be in the region of €19 million disadvantage for Ellesmere Port versus other similar plants in Europe, so a further impact. Then also, when you look at some local taxation, local rate burdens, we see a heavier burden in the UK than we do in other European locations; so three very specific areas where Government actions can affect the competitiveness, or otherwise, of our facilities.

Q122 Mark Hunter: Right; well, yes and no. Government cannot really do an awful lot about the geographical location of the plant, can they?

Mr Browning: Clearly, that would be truly waving a magic wand. I think what can be done though is in terms of easing the costs of managing those logistics, whether it be in terms of the costs of operating transport activities, the speed of moving goods through the processing, the administrative side, so whilst the physicals cannot be changed, some of the ways in which the logistics are handled could be helped.

Q123 Mr Clapham: Mr Browning, first of all, may I ask, because you were sitting in when Mr Osborne gave his evidence and you heard him refer to a review procedure, do you think, if a review procedure were built into your agreements with the trade unions, that may impact in a way which would result in you thinking differently when it came to closures?

Mr Browning: I think, first of all, I should emphasise, there is a constant dialogue that goes on with our trade union partners, in any case, so that is part of what I would call regular management discussion, review, both at a local and a national level, in terms of the current state of the business and the future plans. Coming back to the specifics of the review, my view would be that anything that makes doing business in the UK more cumbersome, more difficult, whether that be in the sense of starting up new business operations or resizing existing business operations, generally would be a negative for the vibrancy of the economy in the UK. I think you have to balance any formal review process with the extra administration and the burden that would place on a vibrant economy.

Q124 Mr Clapham: Turning to your productivity figures, between 2002 and 2005 you indicate in your submission that you increased the productivity of your factories in the European area by 23.5 per cent; implicitly you make a comparison with the UK, but the words you use in the submission refer to challenges in the UK to bring the UK up to world-class standards. You say also that you have achieved these improvements by virtue of better agreements, better agreements with the trade unions and flexible working. Could you say whether the plants in Europe are indeed up to a world-class standard?

Mr Browning: I think it is important, when you look at variances of performance, rates of improvement, to understand the starting-point on which you are basing those rates of improvement. It is true to say that both the operations in Luton and the operations at Ellesmere Port have shown very significant improvement over the recent past, and I think it is a credit to the local teams, all of the people involved, that we have seen that rate of progress. The reality remains, if we talk about Ellesmere Port specifically, that plant is still the highest-cost Astra assembly facility that we have in Europe; so whilst the gap has closed it has not yet closed far enough. As we look forward to future investment, a couple of the areas we have to work on are very specifically in terms of the configuration of the plant, because a brownfield plant is always much more of a challenge in terms of getting to the ideal, 'best in class' status of a plant layout in operation, so both the physical infrastructure of a plant and in terms of the working practices, the terms and conditions operating in that plant at a given point in time. As a general rule of thumb, we would see a brownfield investment generally having between 20 and 25 per cent disadvantage versus a greenfield start, when you can start with the current 'best practice' implementation, whether it be in terms of the physical or in terms of the operating practices in that plant.

Q125 Mr Clapham: You would say that the way of travel is in the right direction?

Mr Browning: Very much so.

Q126 Mr Clapham: In terms of the sticking points that you find, in trying to search for greater labour flexibility, are you able to work with the unions to achieve what you want to achieve, or are there any problems which do seem they are going to be obstacles that are difficult to get hold of?

Mr Browning: If you talk about the recent past, the trade union partners have been a very fundamental piece of the collaboration that has gone on in the plant to make the progress that I just quoted. The discussions are ongoing now, in terms of the proposal we have to put forward for the next generation Astra, and the collaboration, again, with the trade unions, in terms of putting the right proposal forward, the endorsement of that proposal from all of the employees within the plant, is going to be critical to the success of that proposal going into the broader GM system.

Chairman: We will move on now to perhaps the key question.

Q127 Judy Mallaber: Yes, and the change in the terms of our inquiry since we got going really. From your experience, there have been so many changes, can you tell us what are the main reasons why some companies are expanding production in the UK and others are cutting production, because if we do not know that we do not know what we can do to encourage the one and discourage the other?

Mr Browning: If you strip it down to its barest bones, the companies which have the longest-established history in the UK are the ones which have had to address some of the issues I have just been talking about, in terms of brownfield sites, in terms of legacy working practice agreements, terms and conditions, and also bearing a large legacy cost in terms of retirees and the benefits to support those retirees. When you have an industry which is mature, in a market which is mature but still with productivity improvements, if you have got mature industries, mature markets, mature companies and a stable demand, then to find ways to generate the productivity you need really you can look in only two places; either by right-sizing the capacity of your operations, or finding new avenues for growth and extra volume in the system. If you look at GM's position, what we have done recently at Ellesmere Port is look to get the employment base at Ellesmere Port to the right size for potential future investment, so an adjustment for future growth, future employment in the area. If you compare that with some of our competitors, who have been more recently established, they have not had to make the changes, the updates, they have been able to come in with a fresh set of facilities, a fresh set of working practices and the ability to start from a clean sheet. I think it is always more difficult to sustain a business than to start one up, and, I would say, in a nutshell, that is the difference.

Q128 Judy Mallaber: That would explain why many of my constituents go to Burnaston, to the Toyota plant, and that would be precisely the advantage you would be saying they had, starting from scratch?

Mr Browning: For example, we have just over 23,000 retirees of Vauxhall Motors in the UK; the costs associated with those clearly are not borne by the companies which have started up more recently. Those companies also have been able to implement state of the art working practices and facilities, which we are looking to do progressively and, for example, in the case of Ellesmere Port as we move towards investment in the new Astra.

Q129 Judy Mallaber: Are you seeking to learn from those experiences of the newer companies then, quite explicitly, or are you setting down a slightly different path from the one that they have gone down?

Mr Browning: I think, around the world, everybody is looking to establish the best practices and the things that make businesses successful, and so when we are approaching the Astra investment at Ellesmere Port we are looking to put in place what we believe are the best practices for quality, productivity and the performance of the operation in case.

Q130 Rob Marris: Leaving aside the question of 23,000 pensioners, or whatever, which is just an indication that GM apparently has cocked up its pension scheme in the US, and in the UK, we find out now, but, in terms of brownfield/greenfield, Sunderland, for Nissan, is one of if not the most productive car plant in the world, certainly in Europe, I think it is, and it has always been ?at?? one or two for the last few years. It has been over 20 years; for how long does a plant count as greenfield?

Mr Browning: When you look at the history, I think the history over 100 years is very different from the history of 20 years. When you look at what is going on, in terms of the steps to improve and bring our operations to the necessary level of competitiveness and productivity, you would find, I think, that when you implement the actions that we are looking to implement for the next generation Astra, the productivity of the Ellesmere Port plant can be at a very competitive level, but it takes agreements from all the parties concerned to implement those and make sure they actually become an operating reality.

Q131 Chairman: How much is it a question of, I cannot think of a better word than, sentiment? The Japanese now, I suppose, see the UK as their base in Western Europe and Europe, and it is almost like their second HQ, whereas companies like yours, which are much more diverse, you have this huge history in the UK but are based in the United States with production all over Europe, have a much less emotional attachment, almost, to the UK?

Mr Browning: As I said earlier, there is a strong desire to see us maintain our manufacturing operations in the UK, not just from an economic point of view, a financial point of view, but also because we do believe the Vauxhall brand is seen as a domestic UK brand, it does have this very large customer base here. We think that it is right to have our footprint here, from a manufacturing point of view, as well as from a sales point of view. Obviously we have to meet certain business criteria to do that, but it is something that we would like to maintain.

Chairman: Back to some of the specifics, Judy.

Q132 Judy Mallaber: Where we have successful companies, like some of the Japanese companies, for the reasons you stated, are they managing to maintain that momentum, in your view, or are there ways in which they then start to become stale and even to refresh themselves?

Mr Browning: I would not claim to be an expert on the internal workings of those competitive companies. I think every competitor, as I say, as they mature, in a maturing market, has those challenges to deal with, and I think the pressures today are such that they have to be dealt with very quickly. Just going back to the basic point that I mentioned at the beginning, if you have got a fixed capacity in place in a market, that market is not growing but normal productivity improvements are running at the rate of between eight and ten per cent, then you have pressure on restructuring literally as you go through the maturing of that company on a year-to-year basis. Every company has to continue to improve their operations to remain competitive in the marketplace.

Q133 Judy Mallaber: Can we just go back to what you referred to a while ago and was in your evidence, about the disadvantage of the UK in comparison with the rest of Western Europe, and you identified earlier particularly energy costs and logistical costs. We have done quite a lot of work on the differences in energy costs and you mentioned those factors as being things for which the Government could give assistance. First of all, what evidence have you got actually of other comparable plants in the EU which do have lower energy costs?

Mr Browning: Again, forgive me if I do not give specific numbers, as they are sensitive, but when we compare Ellesmere Port specifically with its sister plants across Europe, you see higher energy costs for the UK than for other Western European facilities, and so it is a direct comparison between Ellesmere Port and its sister plants in Europe.

Q134 Judy Mallaber: You have not been seeing increases in their energy price rises? We were being led to believe, because of rises in worldwide prices for oil, gas and coal, that we would be seeing substantial increases in prices for the European competitors. You have not been seeing that?

Mr Browning: Our experience is the opposite; we have seen greater increases in the UK than those specific sister plants.

Q135 Judy Mallaber: What would you expect that the Government should be able to do to assist in that; are there specific things that you would be looking for from Government?

Mr Browning: I think the important thing to maintain is a very open, transparent and competitive market for energy in the UK.

Q136 Judy Mallaber: One of the arguments has been about the lack of liberalisation of the energy market in other European countries, so how are you seeing that reflected?

Mr Browning: Clearly, with the EU as a single market, in that sense, it is not just in terms of the UK it is also in terms of across Europe in total.

Q137 Chairman: I wonder, Mr Browning, I know that we are getting into the realms of confidentiality and I do not want to press you too much, but could you give us an idea of the order of magnitude for the energy price differentials, because the Committee is on your side here and has expressed this view in writing in previous reports? It would help us if we could have just a little bit more colour on the very helpful picture you have painted?

Mr Browning: What I would like to do is take that request away and look at what we might be able to provide you with, as additional input.

Chairman: That would be very helpful, Mr Browning, thank you very much indeed.

Q138 Mr Hoyle: You have just been going on about the different issues, about plants, but can we look at logistic costs, because, obviously, as you say quite rightly, energy has been a big worry. Presumably, what you worry about is the UK plants which produce actually for export, therefore it is the additional costs; were you trying to bring the plant size down to where they match the UK requirement, in car sales?

Mr Browning: No, because if you look at the numbers, again, in the case of Ellesmere Port, actually we export quite a large proportion of the vehicles assembled there. In fact, when you look at our UK operations in total, between Luton and Ellesmere Port, around slightly less than two-thirds, but around two-thirds, is for export, so there is a lot of movement of components into the UK and finished vehicles out of the UK as well.

Q139 Mr Hoyle: That brings me on to the very important question, so is production costs also the issue of components, because, presumably, you look for continental supplies of components and the factory is a long way from the component production, or are you still using quite a large amount of UK components? I am not quite sure.

Mr Browning: When you look at our purchasing of components and supplies in the UK, we purchase over £500 million worth of components in the UK each year.

Q140 Mr Hoyle: What is that in percentage terms of the car build?

Mr Browning: I do not have that number to hand.

Q141 Mr Hoyle: Would it be possible to have that, because obviously that gives an indication?

Mr Browning: Again, let me take that one away and see what we can provide to you. We have certain items that we purchase in the UK, there are others that we bring in and the sourcing of components is done on a global basis, not just a European basis, so a lot of those components come from literally around the world. Therefore, the logistics differences that we were referring to were simply on a comparable basis between the sister plants of Astra and Ellesmere Port in the UK versus the Western European plants. When I talked about a logistics disadvantage in the region of €19 million it was on a like-for-like basis for the other Astra plants.

Q142 Mr Hoyle: It is not based on the components?

Mr Browning: It is not, because those components are the same for all the Astra plants.

Q143 Mr Hoyle: They are bought in dollars rather than pounds, presumably?

Mr Browning: Again, it depends from where that sourcing comes.

Q144 Mr Hoyle: If it is the world, you use your dollar premium, presumably to ensure that you have got a long-term competitive price?

Mr Browning: Again, it depends, which currency, which market, which supplier and how the contracts are written.

Q145 Mr Hoyle: If it is possible actually to achieve a breakdown, to say, UK supply, so much of components to the Astra market, if you could?

Mr Browning: Let me see what we can do.

Mr Hoyle: That would be very useful. Obviously, part of our worry is not only is it job losses in the car industry but the knock-on effect is where there is an effect on the components industry and, particularly, from our point of view, the UK components sector, as being an important part of manufacturing, we are just wondering where that market is going. Possibly you could be able to help with that. Of course, you did say you would let us know the GM cars sold in Belgium, Poland and Germany as a future figure, and could you break that down a little bit further, I am just wondering what each Government actually procures from GM?

Chairman: Let me explain that Mr Hoyle has a view, which the Committee may or may not share, I think probably I would agree with it, that the British Government is not always good enough on its public procurement policy, in terms of supporting domestic manufacturing industry.

Q146 Mr Hoyle: I would like to see your arm twisted a little; that is it, basically.

Mr Browning: I will certainly provide the data in terms of the total market. Again, I will need to look at the confidentiality of who those customers are.

Mr Hoyle: I will be quite honest with you, I do not think you can hide behind that, because these are Governments which are procuring using taxpayers' money, so I would not like you to try to use that argument that is not actually standing up, or otherwise we would have to use the powers of the Committee.

Q147 Chairman: I suspect this information is in the public domain, because we know what the Government buys.

Mr Browning: It depends which customers you are talking about; earlier you mentioned some national governments, you have mentioned some other fleet types of customers. In terms of the national governments, no problem.

Q148 Mr Hoyle: Can I just clear this up. I mentioned fleet customers, but only procured using taxpayers' money, so it is as simple as that, which will be in the public domain, or it should be, and I do not think it is one that you can hide behind and I would not expect you to. I am not asking you to give me the detail of what people pay, it is just the volume and money spent?

Mr Browning: If it is for public procurement, absolutely no problem. You seemed to be indicating earlier fleet customers as well; that was where the confusion was.

Mr Hoyle: I called the Post Office "fleet," but it is part of the Government.

Chairman: This Committee is looking at doing possibly a later inquiry into public procurement and the way in which it is used in this country to support or not support British manufacturing industry, so we may come back to you for some more detail later. It is a matter of concern to the Committee.

Q149 Rob Marris: I was pondering this logistics question, actually; it is not really what I am going to ask you, just as a comment. The logic of it is it may be, given that the UK, in one sense, is peripheral to Western Europe, that you will be shutting down your production in Michigan because everybody lives in Florida and California, which are considerably further away than now Western Europe, which is quite small, but anyway, leave that aside. Our predecessor, in 2004, concluded that the UK industry was basically pretty strong but more was needed to be done to improve skills and investment in automotive R&D as a strength in the UK, I think. Given our previous assessment, from where you are sitting, would you agree with that assessment, and, secondly, if you do not agree with it, should we change it, and in what way?

Mr Browning: I think that the analysis and the focus from that time are still essentially true and correct. I think we need still to continue to develop the right skills in the UK and make sure we nurture the environment in which some of the historical engineering strengths of the UK motor industry continue to be maintained and developed, so I think that is a very important part. I think, when you talk about some of these short-term structural adjustments that you see the industry going through, you have to separate those from the longer-term opportunities for the UK really to take a lead in some key areas of technology or key areas of infrastructure. I think, when you talk about the automotive sector specifically and look further into the future, the whole question of the hydrogen economy and the next levels of technology that the automotive sector will move on to are areas that we should be addressing specifically now, for the UK to keep a capability, to maintain, nurture and grow that research and development and engineering specialist skill set that we do have in the UK. We need to separate, as I say, some of these more tactical, short-term restructuring actions from the longer-term focus of how we continue to ensure the engineering skill set is appropriate for the automotive arena well into the future.

Q150 Rob Marris: Historically, a classic measure of a branch plant economy, if you look at GM production in Michigan versus GM production in, say, Ontario, is that in the branch plant economy the research and development budget is a far lower proportion of the operations budget. How much R&D is Vauxhall allowed to do by GM in the United Kingdom and how much of it is done, say, either in Germany or in the USA, or whatever?

Mr Browning: I think it is important to understand, when you talk about research and development and product development within General Motors, that is part of a global system of development and research, and so everybody is collaborating in developing global projects, of whichever physical location they happen to be part. In the UK specifically, we have a Vehicle Engineering Centre at Millbrook which focuses on the commercial vehicles and has a particular specialty in that area, but the entire global resource is sharing work on projects around the globe and it is not just focusing on products that are specific to that country or that region, it is a global product development system.

Q151 Rob Marris: Would you anticipate that there will be more or less automotive R&D carried out in the United Kingdom ten years from now? I am not asking just about GMC but generally.

Mr Browning: I do not see that as necessarily a pre-determined direction. I think there are areas of great opportunity, particularly in terms of vehicle propulsion, where the UK could take really a leading edge. As I say, if you talk about long-term opportunities, focus on innovation, particularly innovation around the hydrogen economy, it is a field which is still relatively open within the global automotive industry.

Q152 Rob Marris: Are you putting in a bid for that then, for the UK?

Mr Browning: I think the UK needs to think about where the opportunities are, in terms of developing the skills, having the research capability in place to feed the entire global industry, it is not just about Vauxhall Motors or GM, for that matter.

Q153 Rob Marris: Can I put it this way then, as I see it, you are saying, and this is perhaps putting words in your mouth, and tell me if I am wrong, hydrogen is like one of the next big things, automotive, what would the UK need to have in place to persuade General Motors Corporation to invest a significant amount in something like hydrogen propulsion research in the UK?

Mr Browning: I do not think it is so much a question of GM investing, I think it is the automotive industry globally having a need and how does the UK present itself as a great resource for the development work and ensuring the infrastructure is in place at the right time. Whether it be in terms of technology corridors in some of the heritage we have, in terms of automotive engineering, particularly around the M40 and up through the Midlands, whether it be in terms of specific capabilities, at universities, Warwick, for example, whether it be in terms of government policy that looks at helping to see the infrastructure that ultimately a hydrogen economy would need, I think those are all the sorts of things that can be planned well in advance to help create the right environment for the UK taking a leading role in that arena.

Rob Marris: I wonder if you would be prepared to let us have, and you might not be, with commercial confidentiality, or whatever, a brief written assessment of what is in place, in that scenario that you have just outlined, already in the UK and what is lacking? I would find it helpful.

Q154 Chairman: This is an SMMT point as well. This really goes to the heart of our inquiry; what two or three things do we most need to do to ensure, in the broadest sense, there is an automotive industry in this country for the next 30 or 40 years? It would be really interesting to have your perspective on that, now or later, or through the SMMT more generally, because I am still not quite clear, I think I know some of them but what the full list is?

Mr Browning: Yes, certainly we will do that.

Q155 Miss Kirkbride: I hope your prediction was right as that would directly affect my constituents, who sit on the M40, or just about on the M40 anyway. I want to ask you just one thing, to respond to the previous person, the Union representative, in more direct terms than you have been asked so far, which is this view that he has and the Union has that we have lost jobs in the United Kingdom because our employment laws are so flexible that companies like yours, and others, cut jobs in the UK because it is easier than doing it in Germany or elsewhere?

Mr Browning: I would like to correct a couple of things that were said. First of all, that we were sacking people at Ellesmere Port, which is not true; we have put in place a voluntary separation programme and we have already received a very significant number of applications for the voluntary programme that we have put in place. I would say, in the specific case that we have been talking about today, Ellesmere Port, the comment about ease of dismissing people in the UK is entirely irrelevant because it is not what we are doing in the UK, it is a voluntary separation programme. Secondly, I do not see that as an issue for the UK in terms of the decisions that are being taken around the automotive industry, at least in the case of General Motors. The decisions are based on the economics, the long-term economics of a particular operation, a particular facility, and it is the underlying competitiveness of that operation which really is at the heart of the decision-making that is taking place. When you look at whether it is the investment in new facility or the adjustment of an existing facility, there are many factors that are taken on board; cost obviously is a very important piece, the local regulatory environment, the degree of support for the automotive industry in that market, in that environment, is very important as well. It is not, as perhaps has been characterised on occasions, simply an assessment of where it is most simple to dismiss people.

Q156 Miss Kirkbride: I want to finish off on the Rover Task Force and say now what I should have said before, which is, as I sat on it, I declare an interest. In respect of that and the voluntary redundancies that are taking place at Ellesmere Port, has there been any approach to or from Government as to what help might be available to those workers in these circumstances?

Mr Browning: We were fortunate enough to have, as you are probably aware, both the Chancellor and the Secretary of State for Trade and Industry actually to come to the plant on the day that we were making the announcement of the removal of the third shift, and so there was very visible support, in terms of the focus of the local agencies to help, in terms of the transition of those people who did take the voluntary separation programmes. There has been a lot of work going on with the North West Development Agency, in terms of making sure there is as much of a transition programme put in place as possible, as much assistance. Also, we have been encouraged by the number of local employers that have been contacting the plant, interested in the people that were going to be leaving the operations at Ellesmere Port as well. I would say, both from what we have been able to do internally and the local agencies, there has been good collaboration in terms of making what is obviously a painful transition for ourselves, and for the families concerned, as smooth as possible.

Q157 Miss Kirkbride: From the company's point of view, is there anything else which could be done, offered by ministers or quangos, paid for by the taxpayer, which could be offered, which has not been offered so far, which you would like to see put in place?

Mr Browning: I would say the response so far has been very positive. I think both the collaboration at a national and a local level has been encouraging. We are focused very much on working our way through this current transition but then putting a very great degree of focus and energy on the future investment proposals as well. We are working together with those same agencies on the future investment as well as the short-term transition, so nothing that is specifically outstanding, no.

Q158 Miss Kirkbride: Perhaps you would like the taxpayer to be more generous?

Mr Browning: I think it is important not just from a taxpayer's perspective to say how we are competing but also some of the international macroeconomic factors. In the written submission we talked about some of the, let us say, unfair competition in terms of exchange rate manipulation and that is a very significant element, in terms of competitiveness of manufacturers from some parts of the world versus manufacturers in other parts of the world. When you look at a potential competitive disadvantage of the magnitude of €3,000 per vehicle versus a vehicle imported from Japan, in that particular case, there are many local competitiveness issues, in terms of how we manage the economy in the North West of England, in the UK generally but also global macroeconomic policy issues as well, which all have to be addressed collaboratively.

Q159 Chairman: Mr Browning, thank you. Is there anything else you would like to say to the Committee?

Mr Browning: No. I appreciate the time that you have taken. I can just reinforce what I said earlier, that we are proud of the heritage of Vauxhall and General Motors in the UK, the length of time we have been operating here and it is our strong desire to maintain that going forward, but that has to be on the basis of a very competitive operation, and that is what we are looking to deliver.

Chairman: In that case, it is time to apply the brakes to this session. I do want to repeat my gratitude to you for your willingness to come here and give evidence. We particularly look forward to, if you can, some additional evidence on the energy question, which will be very helpful, and, through you, perhaps I can say to your colleagues elsewhere in the industry, although this inquiry is born out of the failure, the difficulties, the challenges facing different parts of the sector, we are very anxious to build a prosperous future for it too, so some policy suggestions to help achieve that would be very welcome from you and your colleagues. Thank you very much indeed.