UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be
published as HC 1075-iii
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
Tuesday 11 July 2006
MR JON GOODMAN and MR MICHAEL LYNCH
Evidence heard in Public Questions 160 - 276
USE OF THE TRANSCRIPT
|
1.
|
This is an uncorrected transcript of evidence taken in
public and reported to the House. The transcript has been placed on the
internet on the authority of the Committee, and copies have been made
available by the Vote Office for the use of Members and others.
|
|
2.
|
Any public use of, or reference to, the contents should
make clear that neither witnesses nor Members have had the opportunity to
correct the record. The transcript is not yet an approved formal record of
these proceedings.
|
|
3.
|
Members who
receive this for the purpose of correcting questions addressed by them to
witnesses are asked to send corrections to the Committee Assistant.
|
|
4.
|
Prospective
witnesses may receive this in preparation for any written or oral
evidence they may in due course give to the Committee.
|
Oral Evidence
Taken before the Trade and Industry Committee
on Tuesday 11 July 2006
Members present
Peter Luff, in the Chair
Mr Brian Binley
Mr Michael Clapham
Mrs Claire Curtis-Thomas
Mr Lindsay Hoyle
Mark Hunter
Miss Julie Kirkbride
Rob Marris
Mr Mike Weir
________________
Witnesses: Mr Jon Goodman, Director, Corporate
Communications and External Relations, and Mr
Michael Lynch, Human Resources Director, PSA Peugeot Citroen UK, gave
evidence.
Q160 Chairman: Gentlemen, welcome to this evidence session
on the UK automotive industry. We are
very grateful to you for coming. I
wonder if I can begin, as I always do, by asking you to introduce yourselves
for the record.
Mr Goodman: Thank you, Chairman. My name is Jon Goodman. I am the Director of Corporate Affairs for
PSA. PSA is the seventh largest
manufacturer in the world and we have been here for 20 years in the UK and I am
PSA's senior executive in the UK.
Mr Lynch: Good morning, Chairman. My name is Mike Lynch. I am Human Resources Director, PSA Peugeot
Citroen in the UK.
Q161 Chairman: Can I begin by asking you to bring us up to
date? Where exactly are we now at
Ryton? What is the update situation?
Mr Goodman: I think the best thing is to ask Mike to do
that as he is directly involved with that discussion.
Mr Lynch: The current position at the Ryton plant is
that one of the two shifts that were operating ceased in operation on Thursday
last week; its last shift was Thursday, and therefore as of Monday of this week
the plant is operating on a one-shift basis.
The process we are in with the trade unions at the moment is one of
consultation. The 90-day consultation
process under the HR1 commenced on 5 May and is due to end on 3 August.
Q162 Chairman: So you cannot say anything about that final
shift at this stage formally?
Mr Lynch: No.
Chairman: But it is 3 August when the consultation
finishes. Thank you very much
indeed. That clarifies it adequately
for the Committee.
Q163 Miss Kirkbride: I have a few questions on the global car
market to begin with. We all know that
your competitors, GM and Ford, are in quite a lot of trouble. What is your overall financial
position? Where do you make a
profit? Do you make a profit in the
UK? Do you make a profit in Europe? What is your global position?
Mr Goodman: Most manufacture is now on a global basis and
is therefore subject to different global trends. It is very difficult to draw any huge conclusions because it
depends on the industrial footprint and the historical sales of companies. As far as PSA are concerned, we are the
seventh largest manufacturer world-wide.
We are present in some 150 countries commercially and I believe 15
countries industrially. We are a
profitable company. We are from a
traditional western European manufacturing base where we are the second manufacturer
in Europe. The western European
manufacturing base is a hugely competitive market and we are seeing
increasingly a requirement, for us to achieve our medium term objectives, for
us to look beyond our traditional boundaries.
That has brought the emerging markets into play and I think that is
globally true as well, that we have seen China emerging as a key market for
many people within the industry. It is
certainly true for PSA Peugeot Citroen.
We have seen our sales increase phenomenally in China and our investment
is increasing there as well. The other
key strategic zone for the group as a whole is Latin America. Latin America is another emerging country
where the levels of car ownership are much below those of Western Europe and
the potential for growth is considerable.
The third key strategic zone for us is central and Eastern Europe, which
for the same reasons - low levels of car ownership and the ability and
potential for the industry to grow - is a key area for us to achieve the medium
term growth objectives that we have.
There are some other trends which I think are important. We have been involved in a strategy of
profitable growth which we maintain.
The other trend which we have also seen is a fragmentation in the
traditional markets. We have seen it in
the States, we have seen it in Western Europe, a fragmentation of the
traditional product demand. The
customer is looking for increased levels of choice and that puts greater
pressure on all manufacturers to come up with reduced manufacturing costs to
enable them to generate the diversity of product which the customer is now
demanding. We have also seen another
global trend which is in the news at the moment with the discussions between GM
and Renault Nissan. We saw a certain
amount of consolidation within the industry a number of years ago. PSA has taken a different approach to this
in that we have remained independent but have embarked on a strategy of
co-operation with other manufacturers.
We currently have seven co-operation strategies in existence. The aim of those is much the same as some of
the mergers that have gone on, to give us reduction in costs, reduction in
investment and enable us to bring diversity of product. The third trend has been a real focus on
production costs. Our response to that
has been the installation of a platform strategy within the group which was
phased in gradually from 1998 onwards.
The aim of this is very simply to reduce our manufacturing costs, to
enable us to bring products to market more quickly and to produce a greater
diversity of product on the same basic organs with many shared components,
which also provides us with the opportunity to reduce our purchasing costs by
higher volumes.
Q164 Miss Kirkbride: Some of what you have just said is an
indication, but why have you been making a profit when others have not?
Mr Goodman: We have been careful about the way we have
gone after growth. We have not gone
after growth in a cavalier fashion. It
has been a very matter-of-fact, careful approach and what we have seen is the
level of profitability come under pressure over the last two to three
years. Sales in our traditional markets
have been very difficult and sales in Western Europe have certainly come under
enormous pressure. Last year, for
example, we saw the contribution made by the automotive unit drop by some 39
per cent in one year so, whilst we are in profit, if you equate the profit to
the number of cars we sell it is somewhere in the region of 250-300 euros per
car.
Q165 Miss Kirkbride: So, given the over-supply of car production
facilities in the world today, how are you going to meet those global
challenges in the future?
Mr Goodman: The challenge for us is to consolidate our
position in Western Europe, to ensure that our heartland stays very much that
for us. We have a 14 per cent market
share and we need to maintain that position.
Where we have tremendous potential for growth and the growth that we
have enjoyed is in the emerging markets and it is our industrial implantation
in those markets and our growth in sales which will drive forward our
profitability and our volumes over the years to come.
Q166 Mrs Curtis-Thomas: You said that you were making a profit in
Europe, 200-300 euros per vehicle.
Mr Goodman: Global profit, I said. We do not split out by area. It is one global profit which PSA put in of
around 200-300 euros per car.
Q167 Mrs Curtis-Thomas: So you cannot tell us whether or not you are
profitable in the UK?
Mr Goodman: We do not split out our profitability by
country. We do not have specific
elements. We will make a profit in the
UK.
Q168 Mrs Curtis-Thomas: And Europe?
Mr Goodman: We will be profitable in Europe for cars that
are produced in Europe and produce profit.
Q169 Mr Binley: I find that statement absolutely astounding,
and I found your answer, quite frankly, not the most helpful I have heard. Can you re-think that position about
profitability in the UK because it is vital to many people who have worked very
hard for you?
Mr Lynch: The group has a number of companies in the
UK, notably Peugeot Citroen Automobiles Ltd, which is the manufacturing
function, and central functions like finance, IT, HR, purchasing. It then has two brands, marque Citroen -
Citroen UK, and Peugeot Motor Company, and it also has a bank facility, Bank
PSA Finance, based in Reading. They are
four separate companies that the group operates in the UK. The group will make a profit in the UK
overall. Peugeot Citroen Automobiles,
which is the activity that produces cars for the Peugeot brand, for example, in
2005 (and the accounts were filed this week) made a loss. Part of it was due to exceptional costs in
the closure of the third shift last year, and part of it was due to other
reasons.
Q170 Mr Binley: What are the other reasons?
Mr Lynch: The other reasons were increasing costs and
reduction in volumes that the plant made during the course of the year. Volumes declined last year from the previous
year quite substantially.
Chairman: We will look at the issues about why that
might have happened later on during the questions on Ryton but we are trying to
focus at present on the overall outlook, but Mark Hunter has a supplementary
before his main question.
Mark Hunter: The supplementary was along the same lines
that Claire has already asked and Brian added to but, just for the sake of the
record, are we clear that you are telling us that the company is profitable in
the UK, in Europe and globally?
Q171 Chairman: In overall terms.
Mr Goodman: In overall terms the cars we make are made to
a profit, yes.
Q172 Chairman: That makes a very sharp distinction from Ford
and GM.
Mr Goodman: Certainly.
Q173 Mark Hunter: Your first answer to the question that Julie
asked was a very full answer but it was a very specific question which probably
did not require all the rest of it at that stage. We just want to know is it profitable or not. The question I want to turn to is about the
future of Peugeot Citroen. The company
does seem keen at the moment to expand facilities in eastern Europe, which we
understand, but even eastern Europe has higher manufacturing costs than, say,
India or China. What would you say to
those that would put to you that the logical next step for Peugeot Citroen
would be to move its manufacturing base out of Western Europe altogether,
perhaps to Asia?
Mr Goodman: We have a policy of regional building of our
vehicles, regional manufacture. What we
have seen has been PSA develop its manufacturing structure within each of the
regions that we are targeting to meet that demand, so we have seen an expansion
in China, which is to meet a Chinese demand which went up by 57 per cent last
year, for which we have targeted 200,000 for this year and we will very shortly
be up to 300,000, so we are scaling our industrial facilities there to meet the
demand that we expect from the local market.
We are taking a very similar approach as far as central Europe and
eastern Europe are concerned based on what the potential for the future of
those zones is.
Q174 Mark Hunter: Is this policy of regional manufacture, as
you put it, being revisited in the light of what is happening at Ryton at the
moment or does that remain the company's policy?
Mr Goodman: No.
Western Europe represents 70 per cent of PSA's sales. It remains a hugely important part of the
business of manufacture and it will continue to do so. It is important we maintain a regional manufacturing
base to deal with western European demand.
Q175 Mark Hunter: So it is no part of the company's current
plans to reduce any further the current capacity in Western Europe?
Mr Goodman: We have manufacturing capacity that is geared
towards the requirements of the market and at the moment there is no future
expectation of changing our manufacturing capacity in Western Europe.
Q176 Mark Hunter: Presumably the logic of your argument is that
if the demand reduces still further in Western Europe then yes, you could very
well alter your regional manufacturing base to reflect that?
Mr Lynch: I think it is important to say that the
manufacturing capacity is a function of a number of things and that includes
the size of the plants and the overall capacity of the plants but also the
number of shifts that are operated in the plants. The group flexes its capacity through increasing or decreasing
the number of shifts that work in different plants either by a full shift or a
half shift arrangement. There is
flexibility amongst the manufacturing sites to increase or decrease volumes
according to market demand through flexing the production time and the number
of shifts we operate.
Chairman: We will now move more specifically to the
situation at Ryton.
Q177 Mr Hoyle: It is obviously a big issue and that is why
you are here today. We understand that
the UK Government were in discussions and made you an offer of a £14.4 million
grant to support the manufacture of the 207 in this country in 2004 but you
declined that grant. Is there any reason?
Mr Goodman: We made a request, with the help of the DTI,
and 2002 was when we tabled the request.
That request was finally confirmed to us in 2004; December 2004 was the
confirmation that we had that grant, for which we were very grateful. In the ensuing two years there had been
changes to our strategic requirements in Western Europe in terms of volume and
it was decided at that stage that there was no requirement to take up that
grant as far as Ryton was concerned.
Q178 Mr Hoyle: So that was when you decided to close it?
Mr Goodman: What was decided at the time by the Peugeot
brand was a strategic choice that the 206 would remain in the model range
because there were very important price points that needed to be filled in the
model range, and in view of that decision it was important that we had a
manufacturing base for the 206 and it was stated in February 2005 that Ryton
would be the main European manufacturing plant for 206.
Q179 Mr Hoyle: But you knew the 206 had not got a long term
future? It was a model that was running
out, it was ageing. The fact was that
if you were serious about Ryton you would have put the investment in and put a
new model through. The bottom line was
that you wanted to asset-strip, take as much money out as you could at the expense
of UK jobs. Fair?
Mr Goodman: The situation at Ryton was that it was hugely
important that we had a 206 manufacturing base. The statement made at the time was that it would be a
manufacturing base for 206 for many years to come. There was no intention at that stage to sit down and say there
was a closure at Ryton.
Q180 Mr Hoyle: But if you had taken the grant and funded it
could you have upgraded? You would have
had a model to follow the 206, would you not?
Mr Goodman: When the grant was agreed and announced to us
the context in Western Europe had changed, the volumes in Western Europe had
changed and therefore we were unable to take up the grant to build additional
volume of that new car at Ryton. We did
have requirements for the 206 on an ongoing basis at Ryton and that was the
commercial decision the company took.
Q181 Mr Hoyle: That obviously was a commercial decision to
close Ryton. Who owns PSA? Does the French Government have any stake?
Mr Goodman: No, there is no stake.
Q182 Mr Hoyle: So it is a private company?
Mr Goodman: It is privately owned.
Q183 Chairman: PSA - is that Peugeot Société Anonyme?
Mr Goodman: Yes, Peugeot Société Anonyme.
Q184 Rob Marris: Is it not 26 per cent owned by the Peugeot
family?
Mr Goodman: Yes, with around 46 per cent of voting
rights.
Q185 Mr Hoyle: Thanks for that. That sums up probably one of the other reasons why it was the UK
plant, not the French plant. We all
admire the way the French support the indigenous car industry and in fairness
to France it always backs France and nobody can take that away. Whether it is a French tractor, a French
truck or a French car, the French will all rally to buying an indigenous
brand. Do you think we should use that
in the UK? Do you think we should only
support the cars produced in this country and follow the French example?
Mr Goodman: It is worth taking a step back, if I may,
Chairman, to explain the history of our presence in the UK. PSA Peugeot Citroen bought out Chrysler's
interest in the UK back in 1978. We
inherited a failing organisation and a plant that was in a great deal of
difficulty. We are very proud of the
heritage we have in the UK. We are very
proud of the fact that over the ensuing 22-23 years we have built two and a
half million vehicles. The fact that
some 60-65 per cent of those were exported I think is a contribution to the UK
economy which is not to be negated. As
a company we have invested at Ryton. We
have given the plant a new lease of life and we have been firmly backed by the
employees at Ryton and it is only fair to pay tribute to the work that has gone
on. When we were faced with a very
difficult western European market, when we were faced with a very difficult set
of circumstances with a huge increase to the raw material costs and huge
pressure on the cost basis of the company, it was a very difficult decision to
come to to announce our intention to close Ryton. There must be no misapprehension that that is very much the way
in which we have taken it. If I can
come back to your question specifically, you talk about the UK industry and
backing the UK industry. One needs to
bear in mind the context. At the moment
85 per cent of the cars sold in the UK are imported vehicles. Fifty per cent of the cars sold in the UK
are sold by companies that have no industrial presence in the UK. I think we have to accept that we are in a
global industry and that manufacturing has to be looked at on a global scale
and has to respond to global pressures.
We are very proud of what we have done.
We came into the UK when many other companies had chosen not to, many
other eminent companies within Europe, and it is not lightly that we have taken
the decision in an industrial sense to have to move away from the UK. However, it is also important to bear in
mind that the group continues to employ over 5,000 people in the UK, that we
continue to employ over 1,000 people in Coventry after the closure of Ryton and
that our commitment to the UK remains very strong indeed.
Mr Hoyle: So it is all right for France to look after itself
but not the UK? That is fair enough.
Q186 Chairman: Can I be clear about one thing? You have talked about the grant. It seems to have taken two years for the
Government to approve it. Is the
implication of that remark that had the Government acted more speedily in offering
that grant you would have taken the money and invested in the 207 and we would
not be where we are today?
Mr Goodman: There is a degree of supposition there. I think it would be unfair to try and put
this at the door of the Government because we were ably assisted right the way
through the process by the DTI in this regard.
It has taken a lot longer to go through the European level than is the
norm. We have experience of public
grant procedures which do go through quickly, so it has taken longer. No responsible company can make a decision
without a full position on the facts as far as the economics of production are
concerned and without that answer we were unable to make a decision as far as
Ryton was concerned until we got confirmation.
Q187 Chairman: But in 2002 you intended to build the 207 at
Ryton and in 2004 you no longer intended to?
Mr Goodman: At the end of 2004 we were informed of the
grant and we notified them that we would not be taking that up because we would
not be building a 207 at Ryton.
Q188 Chairman: In 2002 you clearly had the intention of
building a 207 at Ryton; otherwise you would not have wanted the grant?
Mr Goodman: The 207 and/or other products at the time,
yes.
Q189 Chairman: And the Government took two years to say yes?
Mr Goodman: Not the Government; the European Union. Yes.
Q190 Chairman: The pace of that approval process is clearly
an issue which this Committee should be interested in?
Mr Goodman: Certainly.
Mr Hoyle: Chairman, I think there is a follow-up question
to that because you leave that very open-ended. If I follow the Chairman, the question is, if the grant had been
more immediate, done within 12 months, would it have changed your decision, but
that is how you want to leave it and we cannot leave it like that because it is
too open. I think the answer is no
because the decision was because of a change in circumstance.
Q191 Chairman: How quickly would that approval process need
to have been to have materially affected your decision?
Mr Goodman: It is a hypothesis. I really would not know and I would not like to comment. The grant was starting in 2002 with a clear
wish to make that investment at Ryton and restructure the plant.
Q192 Chairman: I accept that hindsight is a very difficult
thing to operate with.
Mr Goodman: It is also a very difficult thing as I was
not actually in this position at that time.
Q193 Chairman: But it is reasonably clear that a faster
approval process could well have changed the decision?
Mr Goodman: It would certainly have been a factor.
Chairman: Are you content with that answer, Lindsay?
Q194 Mr Hoyle: So if it had been quicker do you think the
decision today would have been different?
Mr Goodman: I cannot make that supposition.
Q195 Mr Hoyle: Just so that we are right, the speed is two
years to get from start of grant to the end to say yes?
Mr Goodman: Yes.
Q196 Mr Hoyle: The problem there is that you also have to
negotiate what you wish to see and what you want it for, so it is not just the
Government making the decision; it is also what your interpretation is and how
you would use that grant towards a new model to comply with EU rules?
Mr Goodman: Certainly.
Q197 Mrs Curtis-Thomas: When was the decision made to close Ryton?
Mr Goodman: The decision was made after the first quarter
review in 2006.
Mr Hoyle: 2004.
Q198 Mrs Curtis-Thomas: When was the intelligence gained upon which
that decision was made?
Mr Goodman: In 2005 we announced the intention that Ryton
would be the main European plant for the 206 on an ongoing basis. What we then saw through 2005 was a European
market that all analysts had expected to grow in the second half of 2005 and we
actually saw that market decline. We
saw huge competition within the market, incredible price competition and huge
pressure on the raw materials which changed the dynamics of the industry on a
pan-European basis.
Q199 Mrs Curtis-Thomas: So did your intelligence in 2004 signpost you
to the probability of that situation in 2005 and then 2005 came along and
confirmed it and upon that you based your decision in 2006?
Mr Goodman: No.
Our decision was taken very much with the detailed first quarter
strategic review in 2006 where it became clear to us that we had to look at
very careful questions about the future of Ryton.
Q200 Mrs Curtis-Thomas: So you can close a plant and it takes you 12
weeks from a standing start, or relatively nothing, to make that decision?
Mr Lynch: The intention is not to close the plant in 12
weeks. The announcement that was made
in April -----
Q201 Mrs Curtis-Thomas: But the decision for closure can be made in
12 weeks?
Mr Lynch: The decision process took place in the first
quarter of this year, as Jon has explained, yes. What was announced by the group in early 2005 was that in
response to reasonable questions about what was the next model for Ryton the
information that was communicated was that the strategy of the group in the B
segment, that range of vehicles, was that it would have four offerings: that it
would have the 107, which is a vehicle that is built in the Czech Republic in
conjunction with Toyota, that it would have the 1007, which is a niche vehicle
that was introduced, a new concept vehicle, that it would introduce the 207
which would succeed but not replace the 206 because it was a larger vehicle,
quite substantially larger and it has recently been launched on the UK market,
and that it would continue to make and sell the 206 in order to achieve, as Jon
has explained, the pricing positions between the ranges of 107, 206 and
207. In early 2005 the decision was
announced to continue to manufacture the 206 at Ryton and to dedicate that as
the sole manufacturing site over a period of some years to come, and therefore
there was not a decision necessary to be made at that point in time as to what
would follow the 206 at Ryton.
Q202 Mrs Curtis-Thomas: Can I put it to you that you turned down the
£14.4 million in 2004 because you already knew at that time that the situation
was precarious, so you hedged your bets effectively? Is that what happened?
Mr Goodman: That is not what happened at all. If you want to get into the specifics of it,
if you compare between 2002 and 2005 the volumes that were sold by PSA in Western
Europe, they declined by a figure of 190,000.
That 190,000, which is not very dissimilar to that 150,000 we were
looking at producing at Ryton, was instrumental in saying we did not need the
additional capacity at Ryton to do that sort of volume on 207, but that we did
require the capacity at Ryton to produce 206 on an ongoing basis.
Q203 Mark Hunter: My question is linked but is from a slightly
different angle. What would you say
about the accusation that I am sure you will be familiar with that the company
had chosen to deliberately under-invest in the plant at Ryton for quite a few
years? You will be aware that that has
been said in many areas of the press, including The Economist. I would be
interested to hear your reaction to that point, that the key part of the
decision was under-investment in the plant quite deliberately because you were
always aware that it would be easier to close in the UK than in France.
Mr Lynch: The group's decision was not to under-invest
in the Ryton plant. The group's
decision was to invest what was necessary in the Ryton plant in order to
successfully achieve in the best conditions the production of the 206, and that
is what it continued to do.
Q204 Mark Hunter: Those industry experts, as they would style
themselves, who said there had been a deliberate policy of under-investment in
Ryton over that time are wrong, quite simply?
Mr Lynch: Yes.
Mr Goodman: Yes.
Q205 Chairman: Looking at the article that claim came from, The Economist is not given to economic
patriotism and extravagant claims. The Economist tends to say things quite
carefully and measuredly when it comes to big business, so you frankly deny
that claim made in The Economist
article?
Mr Goodman: To give some figures, because I think
sometimes it makes things clearer, we have invested in excess of £500 million
at the Ryton plant over the years. We
have also invested 93 million euros between 2002 and 2005. As Mike says, we have invested what is
necessary to meet the requirements.
Q206 Mr Clapham: Mr Lynch, there was no deliberate
under-investment at all which took place at the Ryton plant, but we do know
from your own admission that a new car could be built at Ryton and could be
built profitably at Ryton. Given that
within your strategic framework you have been examining the whole of the
production plants from 2004, is it not a little odd that, given the need to
ensure continued profitability, you decide to continue with just one single
model at the Ryton plant, given that it is the only plant in the group where
one single model is produced? Did you
ever look, for example, at building more than one model which would have given
the opportunity to use component parts from the other, as happens at your other
manufacturing units? Was it an issue
that was examined and, if it was examined, why was it not decided that you
could in fact have produced two cars that would have helped to reduce your
costs and increase profitability?
Mr Lynch: I think it is important to put the structure
of the Ryton plant into context. Ryton
is an assembly plant. It takes
components in from group manufacturing sources for engines, gearboxes, body
panels, suspension assemblies and the like, and it takes components in from
suppliers, be they in the UK or overseas, and it assembles them. The Ryton plant does not have a
body-pressing facility, we do not manufacture engines in the UK and we do not
manufacture other major organs in the UK.
The Ryton plant also has a single track. Many of the production facilities that the group has have two or
sometimes three tracks. It is clearly
much easier to produce more than one vehicle if you have more than one
production line. In the past the Ryton
plant has produced two vehicles. When
the 309 was introduced in the mid eighties that was followed some years later
by the 406, but it is very difficult to achieve effective line balance and man
assignments when you are producing two very different vehicles on the same
track and to produce them efficiently.
It was decided when the 206 was introduced that it would be a single track
plant. There were thoughts during the
development phase of 206 that it would continue to be built alongside 306,
which was the previous vehicle to be built in the plant, but because of the
evolution of design techniques and assembly techniques there was some 20-30 per
cent reduction in assembly time for the 206 in comparison to the 306 and
therefore it was simply not practical to continue to manufacture those two
vehicles alongside each other.
Therefore the efficiency and productivity gains were through
manufacturing a single model on a single track.
Q207 Mr Clapham: Nevertheless, at your other plants you do
produce more than one model and obviously that is to give complementarity
between components that can be used between more than one model and that helps
to reduce costs?
Mr Lynch: That is part of the group's platform
strategy, which was introduced post the production and development of the
206. The 206 is not built on one of the
group's latest platforms. There are
plants in France which manufacture two vehicles off the same platform and there
is a high degree of commonality of the base components of the vehicles as well
as some of the other non-styled components, things like door mechanisms, window
regulators and other mechanical components that do not affect the style and
appearance of the vehicle.
Q208 Mr Clapham: But, given that the platforms are different
and given that the plant at Ryton on your own admission could produce a new car
profitably, was it never looked at to invest in that production line to ensure
that new and different shaped body plans could be used to keep production here
in the UK?
Mr Lynch: As part of the strategic review the group did
that and what it concluded was that there was a need to invest some 255 million
euros to make platform one, the small vehicle platform, capable. In addition to that there would be the need
for specific investment in tooling to assemble the particular vehicle, so a
£255 million investment in the plant would be necessary to make it capable of
producing a platform one vehicle. Faced
with the need to reduce costs across Europe, the group decided, based on the
fact that Ryton was the most expensive manufacturing plant in the group, that
it could not justify that magnitude of investment and make vehicles, having
invested in it, which would be competitively priced.
Q209 Mr Weir: Just leading on from that, you talked about an
investment of 200 million in Ryton, but did you ever consider replacing the
Ryton factory itself with a new build factory that could take advantage of the
latest production techniques of platform one as you have described it?
Mr Lynch: I do not believe the group considered
demolishing the Ryton plant and building a completely new facility elsewhere in
the UK. No, I do not believe the group
considered doing that.
Q210 Mr Weir: Given that you were telling us about your
great feeling for and history in the UK, why not?
Mr Lynch: Part of it is related to the cost of
manufacture and, as I explained a few minutes ago, Ryton is the most expensive
manufacturing plant in the group. Part
of it is due to the industrial footprint of the group, which is that Ryton is
an assembly plant and the volumes produced in Ryton do not substantiate the
investment that would be necessary in order to make body pressings in the UK,
to make engines in the UK, and so to eliminate the logistics costs of bringing
such components from the group's factories in France across the Channel to the
UK.
Q211 Mr Weir: You mentioned the costs at Ryton. Your Chief Executive is quoted as saying
that it costs something like 400 euros more to produce each car in the UK as
opposed to producing it in France. Why
are the costs higher in the UK in your view?
Mr Lynch: The 415 euros more per car that it costs to
make the 206 in the UK on two shifts production versus the average of producing
the same car on two shifts of production in France stems from a number of
things, partially from the manufacturing costs, from labour costs. The average cost of employing a manual employee
in the UK is 3,200 euros a month and that includes employment cost premiums, et
cetera, compared to 3,000 in France and some 2,300 in Spain, so that is one
element. Another element is -----
Q212 Chairman: Just can we stop a second? You are saying that labour costs, with all
the added on social costs, are now lower in France than in the United Kingdom? That is a very important statement.
Mr Lynch: Yes.
Our assessment of it, based on our employment of employees, is that it
is 3,200 euros in the UK and 3,000 in France.
Q213 Mr Binley: Chairman, can I ask if the witnesses could
send us the breakdown of that statement because I find it a very difficult one
to accept?
Mr Lynch: Okay.
Chairman: It is very interesting. If it is true it is a fascinating
revelation.
Q214 Mr Binley: Absolutely.
We need to understand it. You
could help us enormously.
Mr Lynch: Fine.
Miss Kirkbride: Would you have comparable figures for other
places where you produce? Could you
send us comprehensive figures on the cost of employment throughout Europe?
Q215 Chairman: Particularly the Czech Republic, obviously.
Mr Lynch: We obviously know what the cost is of
employing a manual employee in all of the countries where the group builds
vehicles.
Q216 Miss Kirkbride: Are we now top of the list?
Mr Lynch: For PSA Peugeot Citroen? Yes.
Q217 Chairman: So we are now the most expensive
manufacturing location for employment costs, including all the add-on costs, in
Europe?
Mr Lynch: In PSA Peugeot Citroen's manufacturing
sites. I cannot speak for the whole of
Europe but in PSA's manufacturing sites.
Q218 Chairman: You gave labour costs as the first reason.
Mr Lynch: The first reason is labour costs. The other reason is component purchasing
costs. Because Ryton manufactures a certain volume the costs of purchasing
those components to be uniquely supplied to the UK, as opposed to purchasing
components from overseas suppliers that make them in much bigger volumes for
the other plants, is an element as well.
Mr Weir: Are these components manufactured by other
manufacturers in the UK or are they imported into the UK?
Q219 Chairman: We are coming on to the component issue in
more detail next.
Mr Lynch: The other element is the logistical costs of
bringing components in from overseas to the UK. I cited a few minutes ago the body panels, the engines, the
gearboxes, the suspension assemblies that are all transported into the UK from
the group's facilities as well as the cost of bringing components from mainland
European suppliers to Ryton. The fourth
point is the distribution costs of the vehicles. Clearly, as Jon explained, a significant percentage of the
vehicles that are and have been manufactured at Ryton over the years have been
exported to other territories, and clearly there is a cost of getting those
vehicles back to mainland Europe. We
cannot, unfortunately, manufacture vehicles uniquely at Ryton for sale in the
UK.
Q220 Mr Weir: But surely if you are importing vehicles into
the UK there must be a cost of doing that?
You talk about the implementation costs of components in manufacturing
vehicles but you must be looking at substantial costs for importing a number of
vehicles you are currently selling in the UK from mainland Europe?
Mr Lynch: There is a cost for bringing vehicles to the
UK, clearly, but, as I said a few moments ago, the cost of manufacture in the
mainland European sites is lower than it is in the UK.
Q221 Chairman: One thing you did not mention in your list of
cost reasons was, interestingly enough, energy costs. General Motors in evidence said that energy is now a very major
factor in deciding where to locate within Europe. Are these costs a feature of your decision?
Mr Lynch: As part of the trade union business plan to
us the cornerstone of that business plan was that the vehicle that was
designated to be built in Slovakia in 2010 should instead be built at
Ryton. We have done a detailed analysis
of the comparative costs of doing that and a factor in that analysis was energy
costs, yes.
Q222 Chairman: I know you cannot quantify it but how
significant was it? Modest, quite a lot
or a great deal?
Mr Lynch: Modest, not to the degree that was indicated
by General Motors, who obviously are in a different position from ourselves.
Q223 Chairman: It was not a deal-breaker?
Mr Lynch: No.
Q224 Mr Binley: I am a capitalist and I hope that reassures
you. The fact that I am a capitalist
means that I am even more disturbed at some of your answers today, quite frankly. You talk about being a profitable company,
you talk about real focus on production costs and yet you only source 12.5 per
cent of your components for assembly at Ryton, leaving the rest of the stuff to
come from elsewhere. Given that GM
believes logistical costs are a major disadvantage for the UK car industry, do
you think your logistical model was a mistake?
Mr Lynch: I could only really talk about the 206. The 206 was a vehicle that at its peak was
manufactured at the rate of something like 800,000 vehicles a year in Europe
and at its peak Ryton manufactured 200,000 in one year. Normally the production volumes at Ryton are
of the order of 170,00-180,000 on three shifts, which means that some
600,000-plus of the vehicle were manufactured between the two French sites at
Poissy and Mulhouse during its production.
If you have a component sorting strategy that says part of it is to
minimise the logistics costs you are going to choose suppliers that are able to
produce them closest to your major centres of production and manufacture, which
means that inevitably a significant proportion of components were sourced from
French suppliers in order that the total distribution costs of components to
all three sites was minimised. There
would be little point, for example, in having a set of tools in the UK capable
of making 800,000 sets of components a year, delivering 170,000 of them to
Ryton and 630,000 across to France.
Q225 Mr Binley: So are you telling me that your decision-making
processes put a heavy burden on Ryton almost from the start?
Mr Lynch: Not at all.
Q226 Mr Binley: You cannot have it both ways.
Mr Lynch: The decision making processes for a
particular vehicle optimise the costs of manufacture completely among all of
the centres that manufacture it and do not prioritise ----
Mr Binley: I understand what you are saying, but it
still left the fact that Ryton was at a disadvantage right from early on. You cannot have it both ways. I think Mr Marris wants to come in with a
supplementary.
Q227 Rob Marris: In terms of where your supplies of components
are based and the 600,000 you get from here to there, I know different
companies have different models but I think I am right in saying that Ford does
not now produce a single car in the United Kingdom but it produces two million
engines in the United Kingdom. That is
a similar thing. Those two million
engines are going principally into Ford cars which are built in other parts of Western
Europe. That is a very different model
from yours. Can you tell me why the
difference is?
Mr Goodman: We do not know why the difference is and I
think you would have to talk to Ford about that. What we do know is that it is important that we talk about our
co-operation strategy. One of the
reasons that Ford build two million engines a year in the UK is the fact that
they are in co-operation with PSA on diesel engines with shared costs that
reduce the on-cost of producing those, and now we are between us the largest
diesel engine manufacturer in the world.
It is a similar story with BMW who will be producing their petrol
engines for the Mini at Hams Hall while we at our engine plant will be
producing the same petrol engines which will go into the 207.
Q228 Rob Marris: Is Ford producing diesel engines with PSA
which go into 207s?
Mr Goodman: No, which go into the Ford vehicles, but they
chose to do that at Dagenham where they have their existing facility in engine production.
Q229 Rob Marris: Are there any Ford diesel engines going into
PSA batched vehicles?
Mr Lynch: They manufacture at Dagenham the 2.7 litre V6
diesel engine which is fitted to PSA vehicles as well.
Q230 Mr Binley: Let me move on to this productivity question
because it interests me. Ryton at its
best was comparable to Mulhouse, 63 vehicles per hour compared with 66 in
Mulhouse, and considerably better than Poissy which produced 56 per hour. That is a sizeable contribution to the
efficiency and work rate of Coventry's workforce and you praised that
enormously. I remember the headlines
and the marketing that you used to highlight that triumph and say it was about
good management but also about a good workforce. Is productivity not an important consideration for Peugeot in
deciding the future of plants? Is there
not a view that, "Hey, we have got a good workforce here and we ought to be
encouraging them in developing it"?
What more could Ryton workers have done to convince your company of the
value of the plant, and if Ryton cannot compete with Western Europe what does
that mean for Poissy?
Mr Goodman: Be very clear that Ryton has made huge
strides over the past two years. It has
been a tremendous effort by the people involved at Ryton and it is only right
that we do pay tribute to that. We use
the Harbour index and, while we cannot give specific figures because for some
reason in Europe we are not allowed to, if you take -----
Q231 Mr Binley: Apparently what I have given you then? Can you just say that?
Mr Goodman: If you take Ryton as base, 100, Mulhouse
would be slightly better at 102 and Poissy would actually be slightly worse at
98.
Q232 Mr Binley: Which is what I have said.
Mr Goodman: Productivity has not been the issue with
Ryton at all. The issue has been, as we
have said from the start, about the cost of production and that cost of
production, faced with a requirement to reduce our volumes, faced with a
requirement to reduce volumes in the market that Ryton supplies, and that is
why the decision was taken to announce our intentions on Ryton.
Q233 Mr Binley: Can I put it to you that for some
considerable time historically there was a backstop about favouring French
plant as against the British plant so that when the time came, if the time
came, it would be politically more acceptable to close a British plant than a
French plant? Can that be construed
from what you have told me?
Mr Goodman: I do not believe it can at all. Ryton has had a crucial role to play for us
over the past 20 years. We have worked
very hard to build the plant up. We
have worked very hard to maintain it and it has always been our intention to maintain
it. We are faced with a set of
circumstances which we have to react to now, where global influences, global
pressure on costs, mean that we have to react and we have a responsibility to
our shareholders to do that. It is in
no way something that was decided a long time ago. It is something which has come out of the strategic review that
we have done in the first quarter of this year. It is a difficult decision but it is unfortunately something
which we have to do to protect the wellbeing of the group.
Mr Hoyle: If Ryton was in France would it have
closed? The answer is no, is it not?
Q234 Chairman: I want to pursue this at some length if I
may. Can we just be clear on the
facts? Shifts have been cut, have they
not, at the two French factories on the 206?
Mr Goodman: Certainly, yes.
Q235 Chairman: So job losses are happening in France as a
result of the problems of the declining sales of the 206?
Mr Goodman: An important point to recognise is that
through 2005 when the market started to change halfway through the year we took
action at a number of our plants to reduce the production requirement. We did that with shifts coming out at
Poissy, shifts coming out at Mulhouse.
Generally on the B segment we took shifts out at our other plants, so we
put in place the actions necessary to reduce our production. When we got to the first quarter of this
year it was clear that we needed to reduce that production still further and
the only way to do that, and the only commercial way to do that, was to reduce
that production at Ryton, which meant that it did not have a viable future.
Q236 Chairman: So 2,300 jobs go at Ryton and 1,500 in
France? Are those the figures roughly?
Mr Lynch: In broad terms, yes. There are 2,000 employees at Ryton.
Q237 Chairman: By the way, you said earlier in answer to a
question that there would still be 1,000 workers at Ryton afterwards?
Mr Goodman: No, I said in Coventry. PSA will continue to employ 1,000 people in
Coventry.
Q238 Chairman: In distribution and marketing, at that level?
Mr Goodman: Distribution and marketing. Our parts distribution system, which is
hugely important, -----
Q239 Chairman: Supporting the dealer network and the sales
network?
Mr Goodman: Supporting those, and also the training
facility.
Q240 Chairman: A question I did want to ask is a question
that Lindsay asked you. There are hard
economic realities which car manufacturers often have to face but I also think
there is a degree of sentimental (if that is the right word) attachment to the
base of that company. I think the
Japanese car companies now see the UK as their base for Europe, so Nissan,
Toyota and Honda seem to invest and do very well in the UK, but you are a
French company when push comes to shove, so ultimately your loyalty is to
France. It is an emotional thing. You cannot duck it. It is beyond just hard management
accounting.
Mr Goodman: Unfortunately, we have to be very pragmatic
and very practical in the decision-making processes we go through as a business
and those decisions have to be made on economic grounds. The economics of production at Ryton are
that it is our most expensive plant so, faced with a requirement to reduce
production, that is where you concentrate your efforts.
Q241 Chairman: I would say it is your failure to invest in
that plant over the previous period that made it the most expensive plant. It is not an attack, it is not a
criticism. It is really important for
us in policy terms because the debate about foreign ownership of manufacturing
in the UK is very lively at present. We
see the Japanese committed to the UK and we see the French not.
Mr Lynch: I think it is important to repeat the aspect
of the industrial footprint of the group
We all understand that the Japanese came to the UK some years ago in
order to establish a manufacturing base in Europe and that it was not practical
long term to shift body panels and engines and gearboxes from Japan. Therefore it invested strategically in
Europe as a market in the same way as PSA Peugeot Citroen has invested
strategically in South America and in China.
The industrial footprint of the group means that Ryton, as I have
explained a few minutes ago, is purely an assembly site. It does not manufacture engines and
gearboxes, which puts it inevitably at a disadvantage in comparison to the five
major plants that the group has in France, making between 300,000 and 400,000
cars a year when Ryton has a capacity for 170,000-180,000.
Q242 Chairman: So it was at the periphery of your group's
concerns and did not get the attention - it is not a criticism; it is an
observation, it is a matter of fact - that the French plants got?
Mr Lynch: I would not accept that it was at the
periphery of the group's concerns. It
was a fundamental part of the group's concerns. There were different investment decisions taken based on need at
a point in time.
Q243 Rob Marris: You touched on this before when you were
talking to Michael Clapham. The FT has reported that the group could
have made the 207 at Ryton profitably but would make greater profits on the 207
producing it elsewhere. Is that your
understanding of the PSA group finances on the 207?
Mr Lynch: I have explained that the cost of
manufacturing the 206 at Ryton in comparison to manufacturing it in France is
higher and therefore it is reasonable to assume that in the case of the 207
that would be a similar situation.
Q244 Rob Marris: That is not quite the question. The Financial
Times has suggested that the 207 could have been built profitably at
Ryton. Do you know whether that
suggestion by the Financial Times is
correct?
Mr Lynch: I do not personally have an economic analysis
that shows what the cost of the 207 manufacture at Ryton would be since the
decision was taken back in 2004 not to produce it at Ryton.
Q245 Rob Marris: That was in 2004?
Mr Lynch: Yes, 2004.
Q246 Rob Marris: In February 2005 you announced that the 206
was going to become focused on Ryton but the unions are saying that you misled
them as to the future of Ryton and you said today that the decision on the
closure on Ryton was made following the first quarter strategic review this
year. It seems to me that there is some
contradiction. PSA made the decision
not to build the 207 at Ryton in 2004.
You have a model which is stale in 2006 that you have been centralising
at Ryton from 2005 because sales for that model are getting stale. Where was the future of the plant to be from
2004 onwards if the 207 was not going in there and the company had made that
decision in 2004?
Mr Goodman: The volumes for 206 going forward across
Europe were sufficient to justify two shifts at Ryton on an ongoing basis and
that was a decision which was taken, to move forward and to put 206 exclusively
into Ryton and so Ryton would be the main European manufacturing plant for 206,
which was the announcement we made in February. What we saw through 2005 until the end of the year was that it
became unfortunately evident, in a far tougher market than had been envisaged,
that the requirement for 206 reduced far quicker than anyone had anticipated,
far quicker than analysts had anticipated.
Remember, in 2004 the 206 was still one of the top two best selling
vehicles in Europe, so there was every expectation that volumes in the region
of 120,000-130,000 vehicles per year as an ongoing part of the Peugeot range
were sustainable over a protracted period.
At that stage it was therefore not a moment when we needed to look at
what happened post-2006.
Q247 Rob Marris: Can I explore a little bit what you mean by
"over a protracted period"?
Mr Goodman: We said "many years to come" at the time.
Q248 Rob Marris: It is your company and your industry, not
mine, but my understanding is that the 206 was introduced in something like
1998, that when you discontinued the 205 you still had the 106 and the 206 and
the 205 diesel continued to run. You
split your B segment and your A segment, whatever you guys call it, into the
106 and the 206, so from where I am sitting, as somebody who knows a bit about
the motor industry, you have got the 206 model, which by 2004 was six years
old, which is starting to get a bit long in the tooth in the modern automotive
industry, and I mean no criticism of the model, but you are now suggesting that
that model might have continued at fairly high volumes for several more
years. It would take an extraordinarily
good motor car in today's industry for it to go ten, 11, 12 years with
significant volumes, would it not?
Mr Goodman: I have two points to make specifically on
that issue. One of the problems that we
had as a brand when 205 was replaced by 106 and 306 was that you had an awful
lot of people that did not naturally migrate.
If you look at the Peugeot brand, and we are getting very specific but I
am very happy to go there, it has a 107, which is produced in conjunction with
Toyota in the Czech Republic. That is
very restricted in terms of volumes.
There are 100,000 worldwide for the Peugeot brand. You have a 207 coming in, which is coming in
at a price point which is higher than the 206 it replaces. If you look purely in UK industry terms, you
have a vehicle in short supply that is below £7,000 and a vehicle that is
coming in that is over £9,000, and you have a great tranche of the B segment in
the UK which is between those two price ranges. That was why the commercial logic, which we stand by, was that a
206 had a key role to play for the brand to move between those two, not the
same as 106 and 306 but very important in today's market where, as I said
earlier, you have got this fragmented market, you have got a 1007, you have got
various different models. It is key to
have in that price segment a vehicle that is sustainable and can do a job for
us and 206 we will always say is that vehicle.
Q249 Rob Marris: Lead times in the motor industry are really
quite long, even with modern design techniques and computer-aided design, but
the 107 and the 207 have both I think been introduced for retail sale within
the last 12 months, have they not, and presumably would have been on the stocks
for two or three years before that?
Mr Goodman: The last two months, I think, in terms of the
207.
Q250 Rob Marris: Yes, but I mean the 107, whatever, eight
months. Are you saying to the Committee
- and you may be and I want to try and be clear on this - that the strategy of
PSA was to continue, and may still be to continue, building the 206 in significant
volumes beyond the point, or at least up to the point at which that model is
ten years old, having been in introduced in about 1994?
Mr Goodman: Yes.
Q251 Rob Marris: So that was the aim, and you now find that
sales volumes have dipped rather more quickly than you had expected, hence the
closure of Ryton?
Mr Goodman: That is exactly the situation which we are in
and that is what we had to decide in the first quarter of this year.
Q252 Rob Marris: You see, if I popped down the road from Ryton
to Warwick and spoke to my old friend Nick Matthews in automotive there, or I
went down to Cardiff and spoke to Garel Rees(?), I suspect they would say,
"Well, volumes are likely, good as the 206 may be, to drop off significantly as
it gets beyond its seventh year on the market, even with freshening makeovers
and so on", and you reached the seventh year in a market, and knew you would,
in 2005. The reason I am probing this
is that from what you have said today it looks to me that the criticism made by
the trade unions, that PSA had decided in 2004 that Ryton was for the chop
because it was not getting the 207 and the 206 would be a run-down model
frankly, is correct. That worries me,
that you appear, and the evidence appears to bolster the suggestion, to have
misled the unions as to the future of the plant, which I take quite seriously.
Mr Lynch: The plan and the expectation, which was
announced in early 2005 and was communicated to the trade unions, was that from
its 800,000 per year peak the 206 volumes would naturally decline but that
there would be sufficient demand across all of the European territories where
it was sold to support the production of 120,000 to 130,000 a year for some
years to come enabling Ryton to continue manufacturing on a two shift basis for
some years to come. That was the plan.
Q253 Rob Marris: As the only Western European manufacturing
plant for PSA for the 206?
Mr Lynch: Exactly, that is right.
Q254 Rob Marris: You were, in fact, saying to the unions, "We
can keep this model going for another ten years".
Mr Lynch: Yes.
Rob Marris: I am astounded but
thank you.
Q255 Mr Hoyle: Rob is absolutely right the 206, if it had
not been 2006, it would have been 2007 if the sales had not collapsed. The bottom line is whichever way you try and
dress it up, no matter how many times you tell us nobody will believe that you
did not take that decision in 2004 when you refused a grant but we will have to
beg to differ because everybody will have a view on that. Can I ask you an important question. The UK market is an important market to
you. Is it about your fourth biggest
market within Peugeot?
Mr Goodman: Third or fourth, yes.
Mr Lynch: Third, yes.
Q256 Mr Hoyle: So it really is a big market. Obviously those loyal workers from the UK
are now going to be made redundant.
Have you got a message for them?
Mr Goodman: Yes.
I think we have been faced with a difficult decision to announce in what
we have had to announce. It was a clear
undertaking from the company that once we were moving towards this, and once we
made the decision we needed to announce our intention to close, that we had to
put in place all the support that was necessary for us to look after people who
had loyally worked for the company. If
we had been looking purely at the economics of production the decision to close
would have been a decision that was taken to close almost immediately. However, we chose not to do that, we chose
to phase out our production over a 12‑month period. We chose to move from a two shift to a one
shift operation, despite the on-costs that entailed for the company to enable
us, recognising the difficulties of the West Midlands, recognising our
commitment to the local workforce, to phase out the redundancies, to put in
place the procedures necessary to help our people get back to work.
Q257 Mr Hoyle: The unions have got this campaign not to buy
Peugeot. How much of an effect will
that have on you? Will that cost you
more than keeping the plant in the UK open if people in fact decide not to buy
Peugeot? I am just asking the question,
I am not supporting one way or the other.
Mr Goodman: There are two points which I would like to
make. You have mentioned the
campaign. I think that, thoroughly
opposed to the principle, we have had to make a difficult commercial decision. We are doing that in a way which reflects
the requirements of our workforce. We
have been in discussion with the unions.
The unions oppose it and we quite understand that. The unions asked for a ballot on industrial
action. That ballot was defeated, it
did not get the vote for industrial action.
We are here to look at the factors as far as the UK automotive
industry. I am not sure how well
received the idea that if someone needs to make a commercial decision in the
UK, that they will faced with this style of approach is going to be in terms of
making the UK industry attractive. It
is a very difficult thing that they have launched. I am not sure how much it will achieve for the workers at Ryton,
we are putting all our emphasis into helping them get back to work. However, we believe that the union boycott
will not be effective and that is the basis on which we are proceeding. Our priority has been and will remain to ensure
that we put in place the things necessary for the staff to get back into work
and the packages to support them.
Mr Lynch: I would say for the other 5,000 people that
the group employs in the UK, we hope it does not affect them.
Q258 Chairman: The reason we are asking these tough
questions is because we are trying to understand what the policy environment
should be to sustain the UK automotive manufacturer, that is the reason we are
here. I would love to see you take off
your hats and berets as Peugeot Citroën and instead become people who understand
the UK car industry. Why are some
companies doing better than others?
Mr Goodman: I think that one of the key things that we
have got to bear in mind is a lot of the new investment which has come in over
the last ten or 15 years has been effectively relatively new entrants into the
industry. If you look in Western Europe
to the people who are struggling, be it in Germany or be it in the UK, it tends
to be traditional manufacturers. The
Japanese have come in, they have come in to create their industrial footprint,
the key part of it in the UK with all of the scale that goes with that. This is why I think it is important, we have
never felt that our example, the Ryton assembly plant, was a reflection on the
UK automotive industry as a whole. I
believe that the technology is one of the key areas where the UK has an
advantage. We have been involved in a
number of studies, for example, a recent one that has just finished with Ricardo
whose expertise in some of the diesel technology of the future is huge and is
something that is a real asset for the UK motor industry. You have people like Kinetic and their
battery technology which is a huge asset for the motor industry. I believe that it has very much got to be at
the high‑tech level of things that the ancillary part of the industry can
attract inside investment. In terms of
new investment into the industry, in terms of someone coming in and building a
new plant in the UK, we have not seen a new plant built in the UK, nor in
Western Europe, for some years.
Q259 Mr Hoyle: What about the BMW and Toyota plants?
Mr Goodman: Toyota in Northern France was the last one.
Chairman: BMW opened in Leipzig last year.
Rob Marris: That is not Western Europe.
Q260 Mr Hoyle: I think Toyota was the last one.
Mr Goodman: It is very much in respect of that that
there is an opportunity. We are, as an
industry, faced with a need to constantly reinvent ourselves. The cars we drive today are not the cars we
drove 15 or 20 years ago. There is
another sea change coming with the future technology, such as hybridisation,
battery technology and the hydrogen side of things. I believe that is an area which needs to be concentrated on to
provide the fund of technical expertise in the UK that all European
manufacturers can pool.
Q261 Chairman: The companies which have a very, very long
historical commitment in the UK, such as Ford and General Motors, who have had
their problems recently can find ways of meeting that commitment. There are companies that come in brand new
to the UK like Honda, Nissan and Toyota who set up greenfield factories which
are very attractive in producing and there are companies like you who have
small freestanding plants which are quite vulnerable to closure.
Mr Goodman: There are not many companies like us in that
regard. It is a very specific situation
that we are faced with and that is why I think it would be wrong to draw
parallels on the UK automotive industry, as a whole, on the situation at
Ryton.
Q262 Chairman: I heard very strong rumours that at one
stage in the past you were looking to significantly modernise your
factory. You had looked at a massive
extension to land nearby, which was green belt land, and you could not do that
because the planning application could not be pursued. Are you aware of any truth in that?
Mr Goodman: Personally, I am not aware of that at
all. Is that something you are aware
of, Michael?
Mr Lynch: Part of the study in 2001‑02 included
a completely new paint shop because that was what was necessary in order to
bring it up to future standards.
Q263 Chairman: That would have been on green belt land?
Mr Lynch: There was some land opposite, I believe
there was investigation into the possibility of a supplier park.
Mr Binley: On a cricketing basis, I recognise that you
lads have been sent in on a very difficult wicket to face some quite hostile
bowling and you have been on the back foot for most of the time. I recognise that is your job and I think you
have done it very well. We ought to say
to Peugeot what good employees you have been and I think that has been a
tremendous effort in difficult circumstances.
However, we are still left with a situation whether it was 2006, 2008 or
at the very best 2010, the decision made in 2004 meant that Peugeot at Ryton
would close. It could have been no
other decision. Can you tell me whether
that was the case or were you hoping for a change of bowling? What did you expect would come along bearing
in mind that there was nothing in your locker quite frankly? What did you expect would come along?
Q264 Rob Marris: SW stands for station wagon, not sticky
wicket!
Mr Goodman: I think you relate to 207. There are other projects on the platform,
one which would have been potentially for Ryton, and that was why the
application for grant aid was written in the way it was, it was very non‑specific
about the model. I do not accept that
the 207 announcement was a decision on Ryton at all. We have been very clear.
Mr Binley: Your elbow is up and you are going
back.
Chairman: I think we are going
over old territory.
Q265 Rob Marris: I did want to raise one question following
on from your question, Chairman. When
we were talking more generally about the UK automotive industry and you were
giving some very interesting insights, there is - it is not a great parallel -
a parallel with the 206 and the Mini.
The difference being, of course, Hamsall(?)
makes the engines in this country but the Mini plant in Cowley is a single model plant, part of a large and quite
successful family owned international automotive company. Do you envisage that there may be problems
continuing automotive production by BMW in the UK, given what you had with PSA
where you ended up with a single model at the light end?
Mr Goodman: You know what I am going to say because I
cannot speak for BMW, I can only speak for the specifics of PSA at Ryton. We have been through the specifics, I think
that is a question you are going to have to put to BMW.
Q266 Chairman: I sense a degree of impatience to move
on. We have one very important last
question and you invited Mr Lynch to start on it earlier on. This is exactly where we began the whole
inquiry, about the treatment of employees at MG Rover after the closure of the
plant there. I would like you to tell
me what you are doing to support employees who are losing their jobs at Ryton
and how much support you have had from the various regional and local
organisations who might have looked to support you, and indeed national
organisations?
Mr Lynch: I am happy to explain that. When the group announced what it proposed to
do back in April, we followed that up quite swiftly with some further meetings
with the trade unions and in one of those we explained the total package of
support which the group intended to make available to employees. One element of it was the financial package
as you will assess. The group decided
to show its commitment in the circumstances through offering a very strong
financial package to its employees and if I can quote a couple of examples. For an employee who has done 18 years'
service - and we have a high number of employees who have done 18 years'
service - the payment for them is the equivalent of some 23 months gross
pay. When I say gross pay, I mean base
pay, plus shift premiums, plus direct workers' allowance, plus attendance
bonuses. For somebody who has done 18
years, it is the equivalent of 23 months' pay.
In addition to that, they have the facility to buy their company vehicle
at a third off the bottom book price.
We are making strong efforts to support people financially. We understand and recognise that is only a
part of the support that we need to provide and the other part is to help them
into new employment, for those who wish to move into employment, others clearly
will take the opportunity to retire because people over the age of 55 will
receive an immediate non-actuary induced pension. Some may choose to take that and retire, others may choose to
take that and seek other employment as well, and they are perfectly at liberty
to do that, of course. We have
established a resource centre at the Ryton plant which has significant resource
devoted to it both in terms of people and money. The group has allocated a £5 million budget to help people move
into new employment and it has established an effective working relationship
with a number of the local agencies, including Jobcentre Plus, the LSC,
Coventry Partnership and Advantage West Midlands. There are people from these organisations working on site at
Ryton and there is a significant amount of effort taking place to help people
into new employment. I am happy to say
that a significant number of employees have got new employment or are in the
process of seeking new employment. We
are providing training opportunities.
All 2,000 employees have had a one‑to‑one interview with their
manager to identify what their aspirations and preferences are. Over 1,000 employees have had a 45 minute
interview with the LSC to determine what training requirements they need. Some 700 or 800 people have already had
training courses approved and are in the process of being delivered and there
are another 400 or 500 in the process.
There is a very significant amount of effort being put in to help people
into new employment. We have a number
of other companies on site this week interviewing employees to help them move
into new employment, and there are a number of major employers who are involved
in that process now.
Q267 Chairman: Is there any more you feel the public
agencies could have done to help you in that process?
Mr Lynch: We have had a lot of support from the public
agencies, they have provided people, they have provided resource and they have
provided opportunities. We have a very
effective relationship with them. There
are, as I said, people working on site at the Ryton plant and there is a weekly
co‑ordination meeting of all the agencies in conjunction with people from
the plant to make sure that the efforts are properly focused and directed to
help people get to where they want to go as quickly as possible.
Q268 Mr Hoyle: On terms and conditions, obviously you are
making enhancements on redundancy pay.
Are you doing the same in France or is France slightly worse off or
slightly better off than the UK or are they the same?
Mr Lynch: The statutory redundancy payments in France
are higher than they are in the UK but the payments that are being made, the
financial package that has been put together for employees in the UK, are
higher than has traditionally been given.
Q269 Mr Hoyle: Have I got that right? You are saying that people in the UK, their
redundancy package is greater financially than the ones in France?
Mr Lynch: The ones that PSA is offering its employees
in the UK are higher than the ones that have been offered in the past in
similar circumstances in France.
Q270 Mr Hoyle: That is not quite what I asked. Are you getting more money if you are being
made redundant in France than if you are being made redundant in the UK? A straightforward answer, yes or no?
Mr Goodman: The redundancy pay being given to the
employees at Ryton is greater than the redundancy pay that was given to the
people that left in shifts at the end of last year in France.
Chairman: You have got your answer. It is not the one that you were expecting
but I think you got it.
Q271 Rob Marris: In terms of the employees who are being made
redundant at Ryton, (a) have you offered to any of them and (b) if so, have
they accepted, a move to any of your other plants in Western or Eastern Europe?
Mr Lynch: A part of the opportunity for all employees
is to re‑deploy in the UK. We
have sought actively to re‑deploy people. We have a Tile Hill parts warehouse, that is also located in
Coventry, which employs some 300 manual employees.
Q272 Rob Marris: I was wondering about elsewhere in Europe?
Mr Lynch: People are re‑deploying to the Tile
Hill warehouse, people are leaving the Tile Hill warehouse on the same package
as the people from Ryton, the people from Ryton are replacing them. We have also offered the opportunity for
people to relocate to other parts of the group and we have put together a
financial support package.
Q273 Rob Marris: Such as Malhouse or Poissy?
Mr Goodman: Yes, such as Malhouse, Poissy, Paris or
wherever. At Ryton some 130 people have
expressed an interest in that in total and they have each had a presentation on
the packages, and also the implications of that because that is clearly a big
change for people to make in their lives.
It is not an expatriation, it is almost an emigration, to work on a
local contract in another country where the group is present and those offers
have been made.
Q274 Rob Marris: The group is making that available?
Mr Lynch: Absolutely, the group has committed that
anybody who wishes to go, suitable equivalent employment will be found for
them.
Mr Goodman: One last comment on this, if I may. When we made the announcement it was made
very clear that our commitment was to ensure that none of our people was left
to face a very difficult time alone and we are continuing to honour that
commitment and will continue to do that right the way through to the closure of
the plant, and beyond.
Q275 Rob Marris: In theory, some of the Ryton workers could
end up building the 107 in the Czech Republic or wherever it was if they chose
to?
Mr Lynch: If they chose to they could do something
like that. Clearly there are issues
associated with language and other matters, but the opportunity exists.
Q276 Chairman: Gentlemen, is there anything else you want
to say to us before we conclude this session.
Mr Goodman: Thank you for the opportunity to come in and
give evidence.
Mr Lynch: We have enjoyed the game of cricket. Thank you.
Chairman: Gentlemen, thank you
very much indeed.
