1 Introduction
1. The Automotive Assistance Programme
was launched on 27 January 2009, as an attempt to support the
industry through the economic crisis. We announced our inquiry
into the Automotive Assistance Programme (AAP) on 25 March 2009.
We invited evidence on the following points:
- the definition of 'eligible
companies';
- the application criteria for
the types of projects that are covered by the AAP, including the
focus on low-carbon projects;
- whether the £5 million
threshold excludes too many SMEs;
- the criteria used for awarding
loans/loans guarantees, and how this compares with the criteria
used by the EIB;
- the degree to which the award
of support through this scheme has prevented, or is likely to
prevent, companies from abandoning projects or moving them out
of the United Kingdom;
- whether other measures, such
as scrappage or support for car finance companies, are required;
and
- any other views stakeholders
think the Committee should be aware of.
2. Our intention was to hold a single
session on the effectiveness of the programme itself. However,
events have moved fast. Since we took our decision, the New Automotive
Innovation and Growth Team (NAIGT) (an industry-led project facilitated
by the Department for Business, Enterprise and Regulatory Reform)
has presented its report on the future of the automotive industry
in the UK.[1] The proposed
takeover of LDV has failed and the company has gone into administration.
General Motors, which has two major plants and other facilities
in the United Kingdom, has also gone into administration. In the
light of this we extended our evidence taking, and widened the
scope of our inquiry.
3. We took evidence from Professor Richard
Parry-Jones CBE, the Chairman of NAIGT, to set a context for the
inquiry. We then travelled to Birmingham where we saw Mr David
Smith, Chief Executive, Jaguar Land Rover, Mr Paul Everitt, Chief
Executive, of the Society of Motor Manufacturers and Traders (SMMT),
Mr Graham Smith, Senior Vice President, External Affairs, Toyota
Motor Europe, and Mr Paul Williams, Chief Executive of the Retail
Motor Industry Federation. The next day we visited the North West
Region where, in addition to visiting Leyland Trucks, we took
formal evidence from Mrs Andrea Paver, Managing Director and Mr
Denis Culloty, Chief Engineer, of the company and Mr Steve Barfoot,
United Kingdom Country Manager, PACCAR Finance International Limited
(Leyland Trucks is part of the PACCAR Group). We also took evidence
from Mr Chris Gately, Managing Director, Multipart, and Mr Mark
Hughes, Executive Director, Economic Development, Northwest Development
Agency. We concluded by taking evidence from Mr Dave Osborne,
National Officer for Vehicle Building and Automotive and Mr Roger
Maddison, National Officer for Motor Components, Unite the Union
and the newly appointed Economic and Business Minister, Ian Lucas
MP, accompanied by Ms Jane Whewell, Director, Automotive Sector,
and Mr Ian Gregory, Director, Automotive Assistance, of the Department
for Business, Innovation and Skills. We are grateful to all those
who submitted written and oral evidence, and we are particularly
grateful to the organisations which hosted visits or evidence
taking away from Westminster.
The current state of the UK automotive
industry
4. The Government told us that the
manufacturing part of the automotive industry directly employs
around 180,000 people;[2]
the NAIGT report estimates that if a wider range of jobs are included
the number directly supported by the automotive industry is around
384,000.[3] The Retail
Motor Industry Federation told us "The annual turnover of
the United Kingdom retail motor industry is £14 billion and
it employs 570,000 people in 70,000 businesses".[4]
While jobs in motor retail or services will remain whatever kind
of cars are sold, the NAIGT report suggests that 333,000 jobs
will be at risk in future if manufacturing moves offshore. A large
proportion of United Kingdom production is exported; for example,
Toyota exports about 85% of its United Kingdom production, and
Jaguar about 80% of its products.[5]
5. As the NAIGT report notes "the
UK automotive manufacturing sector has moved further away from
volume car production by indigenous companies, towards greater
dependence on inward investors, and a bias towards luxury niche
vehicles, together with engine manufacture".[6]
Professor Parry-Jones told us:
we make three million engines a
year which is as good as you could ever hope for in any given
country. Most of those are small engines for small cars and most
of them are exported. On the vehicle assembly itself, […]
Because of the historical problems I have described, we have kind
of retreated to an assembler of global, mass-market vehicles and
a developer of niche premium products such as Land Rover, Jaguar
and Aston Martin.[7]
The United Kingdom has the second largest
premium car industry in the world, after Germany.[8]
Scarcely any of the indigenous automotive manufacturers are not
ultimately owned by companies based outside the United Kingdom.
The Committee welcomes the contribution that these foreign-owned
companies make to the United Kingdom economy and the United Kingdom
automotive sector in particular.
6. The UK industry benefits from the
presence of many international companies who have based major
assembly plants in the United Kingdom. There is also an extensive
supply industry. United Kingdom suppliers have the advantage of
producing high quality products and being close to users. Multipart
has a network of 900 suppliers in the United Kingdom.[9]
The challenge is to ensure that the country remains an attractive
place for investment, and that the component supply chain remains
strong enough to serve the vehicle assembly plants. As Mr Smith
said:
Manufacturing operations depend
on large numbers of components. We have approximately 250 suppliers
across Europe, a good number in the UK, and without that supply
infrastructure, and, again, close to the manufacturing operations
where logistics make sense, we would not be as successful and
would not have the same capability and that is part of it.[10]
Our witnesses shared the NAIGT's concern
that the supply chain was "hollowing out" and that this
was "probably the biggest single threat to the world class
industry and the world class manufacturing operations that we
have here at the vehicle assembly and engine manufacture level".[11]
7. If the UK automotive industry dwindles
further, then it will not only be employment which suffers. Automotive
companies are responsible for high levels of United Kingdom R&D.
The 2008 R&D scoreboard notes:
R&D spending by companies in
the UK850 was dominated by five sectors: pharmaceuticals and biotechnology,
aerospace and defence, software & computer services, fixed
line communications and automobiles and parts, which together
accounted for 60% of R&D (see Figure 2). The pharmaceuticals
and biotechnology sector was by far the largest investor, accounting
for 37% of the UK850 total.[12]
Automotive R&D, like the other three
leading non-pharmaceutical sectors, accounted for 6% of total
R&D. Ford Motor, Jaguar and Land Rover all appear in the Top
20 companies carrying out R&D in the United Kingdom.
8. Not only does the innovation from
that R&D strengthen the UK automotive industry itself, it
can support other United Kingdom industries. The expertise and
equipment needed by the automotive industry underpins many other
manufacturing sectors. As Professor Parry-Jones told us:
What are the core processes in any
manufacturing industry? Stamping metal, forming it, joining it,
machining it, forging it and casting it. If you do not have those
five competencies in your country, it is very hard to be an internationally
effective manufacturing economy. Those five core processes of
manufacturing are all underpinned by the auto industry. The auto
industry has been the innovator in all five of those over the
last 100 years. Most other manufacturing industries have piggy-backed
on the innovation developed by the auto industry.[13]
The future of the industry
9. Globally, the automotive industry
is clearly going to remain a key manufacturing industry for the
foreseeable future. As the NAIGT report says, cars provide 90%
of all passenger transport needs and commercial vehicles over
90% of all freight transport needs. There may be some modal switch,
but over much of the United Kingdom the car or van will remain
the most practical solution.[14]
The challenge will be to ensure the automotive industry in the
United Kingdom, from major manufacturers to small suppliers, remains
healthy. In the longer term, the key to this will be to develop
a lead in low carbon technology.
10. Mr Everitt, Chief Executive of the
SMMT told us:
One of the limited number of very
positive outcomes from the current crisis is a recognition that
we cannot live by financial services alone and that to succeed
long-term and to generate wealth, prosperity and jobs in this
country we need the manufacturing sector. The reality is there
are relatively few globally competitive manufacturing sectors
in the UK: automotive, aerospace and pharmaceuticals are absolute
leaders. Not acting, and particularly not acting in a strategic
and long-term way, is a huge risk for us as a country.[15]
11. It is clear that the United Kingdom
automotive industry is at a crucial moment. As the NAIGT report
says:
The UK automotive industry has transformed
itself in the last decade from a sector with turbulent labour
relations and a poor reputation for quality and productivity to
one that is fully competitive. Independent external reliability
surveys put UK built cars at the top of the rankings, and productivity
of labour relations are among the best in the world.[16]
However, there is over-capacity in the
global automotive industry, and the recession has revealed that
this over-capacity is not sustainable. The NAIGT report identifies
the following weaknesses in the sector:
- lack of any global volume vehicle
manufacturers headquarters in the United Kingdom;
- lack of critical scale of vehicle
manufacture (1.7 million versus 4-8 million for France, Germany,
Japan);
- shortage of sufficiently skilled
workers—shopfloor and R&D;
- lack of an adequate supply base;
- historically high interest rates
and strong currency that mitigate against export profitability;
- lack of orchestrated collaboration
among manufacturers and tier one suppliers in the United Kingdom;
- The last weakness it identifies
most concerns us:
- Government ambivalence towards the
automotive sector and the absence of a consistent long-term strategic
policy framework.
12. This Report is a rapid response
to an urgent situation. It would be inappropriate for us to comment
in detail on commercial negotiations relating to individual companies.
We are not in a position to comment on the detailed proposals
in the NAIGT report. If the problems identified by the NAIGT
can be solved, then we believe UK industry could and should flourish.
As well as the reliability, high productivity and good labour
relations identified above, the UK industry is diverse, has globally
competitive vehicle and power train R&D, and strong premium
brands. But its long-term future depends on the Government taking
the right actions now to ensure that the industry is sustained
through this period of crisis. This Report assesses government
policy so far.
1 An Independent Report on the Future of the Automotive
Industry in the UK, New Automotive Innovation and Growth Team,
BERR, May 2009 (hereafter, NAIGT report)
The New Automotive Innovation and Growth
Team (NAIGT) was launched in April 2008 to facilitate the development
of a collective strategic view from the automotive industry on
the innovation and growth challenges that it faces in the period
to 2025. It was an industry-led project facilitated by the Automotive
Unit (AU) within the Department for Business, Enterprise and Regulatory
Reform (BERR). The NAIGT's work was being delivered through an
industry-led Steering Group of senior industrialists, academics
and financial analysts experienced in the automotive sector. http://www.berr.gov.uk/whatwedo/sectors/automotive/naigt/page45547.html Back
2
Ev 64 [BERR] Back
3
NAIGT report, p 25 Back
4
Ev 87 [RMIF] Back
5
Q 62 Back
6
P 27 Back
7
Q 3 Back
8
Q 57 Back
9
QQ 194-198 Back
10
Q 56 Back
11
Q 69, see also Q 162 Back
12
The 2008 R&D Scoreboard, BERR and DIUS, http://www.innovation.gov.uk/rd_scoreboard/ Back
13
Q 15 Back
14
Q 7 Back
15
Q 54 Back
16
NAIGT report, p5 Back
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