Memorandum submitted by Jaguar Land Rover
1. Jaguar Land Rover ("JLR") welcomes
the opportunity to submit written evidence to the House of Commons
Business, Enterprise and Regulation Select Committee's Inquiry
into the Automotive Assistance Programme.
COMPANY OVERVIEW
2. JLR employs around 15,000 people, the
vast majority of whom work in the UK, making JLR the UK's largest
automotive employer and a major industrial presence in the West
Midlands. A further 50,000 jobs in the supply chain are dependent
upon JLR. We have three main production facilities. The Solihull
plant builds the Land Rover Defender, Discovery, Range Rover and
Range Rover Sport. The Castle Bromwich Plant produces the Jaguar
XF, XJ and XK models. Halewood, near Liverpool, produces the Land
Rover Freelander and Jaguar X-type. Additionally, Brown's Lane
in Coventry provides our wood veneer manufacturing facility. JLR
is the UK's largest automotive R&D provider, at around £400
million a year, and this activity is undertaken at our two engineering
centres at Gaydon, Warwickshire, and Whitley, Coventry. JLR is
one of the UK's top 10 and world's top 150 investors in R&D.
Annual exports contribute over £4 billion to the UK economy
and the company is enjoying a growing presence in emerging markets
like China, Russia and Brazil.
IMPACT OF
ECONOMIC DOWNTURN
3. The automotive industry was one of the
first industrial sectors to feel the full impact of the economic
downturn. Since the second half of 2008 the industry has faced
an unprecedented fall in demand due to a lack of consumer confidence
and consumer credit. The premium market for cars was hit particularly
hard and quickly in the downturn. For the last three months of
2008, Jaguar Land Rover saw its global sales fall by more than
a third, a figure broadly in line with this segment of the market.
Latest sales figures show the market stabilizing but at levels
around 35% lower than 2008. We expect that demand will be flat
for the remainder of 2009 with only a slow recovery in 2010 and
then it will take several years to fully recover.
4. The general withdrawal of credit for
businesses by the banking sector has compounded the difficulties
caused by the economic downturn, limiting our flexibility to respond,
together with our suppliers, to large fluctuations in demand,
revenue and cash flow. The credit crisis also has impacted on
investment in future products and new technology, areas which
are vital to the future prosperity of the industry, with most
UK companies cutting back significantly in this area. The lack
of access to normal lending for working capital and consumer financing
was raised as a core problem by the industry in a letter to the
Business Secretary, Lord Mandelson in November 2008, again at
its first joint meeting later that month and at a series of meetings
with Ministers and officials.
5. The downturn has also placed particular
stress on the automotive suppliers, many of which have had to
significantly reduce supply of components and services, often
at short notice and to a number of customers. Reduced credit availability
and the withdrawal of credit insurance have limited suppliers'
ability to respond or restructure their businesses. In order to
mitigate the impact of the economic downturn on suppliers and
to secure continuity of production, JLR (together with other OEMs)
has maintained a close dialogue with its suppliers and provided
direct support where the business has a long term future.
6. JLR itself has responded decisively to
the economic downturn. Over the past few months we have taken
action to reduce production in order to more closely balance supply
to demand. We expect to produce 35% less in 2009 than 2008. Action
has also been taken to reduce costs and resize the workforce for
the lower volumes. In total, through reductions in agency staff,
voluntary redundancy programmes for both hourly paid and management
staff and sabbaticals, the JLR workforce has been reduced by over
2000 employees since October 2008.
7. In addition, in March this year an agreement
was reached with the workforce to accept a package of proposals
that address the company's need for further operational cost reductions.
Key elements of the package include: a pay freeze until 2010;
a four day week at the plants; a 40-hour working week for salaried
employees (as opposed to the current 37 hours) with no increase
in pay; full mobility of labour across the Jaguar Land Rover West
Midlands sites; non-payment of a bonus for salaried employees;
and an increase in employee pension contributions.
8. In total the March agreement is expected
to achieve savings of around £68 million. Although the Company
will continue to offer voluntary redundancy and sabbatical programmes,
this agreement also allowed the Company to confirm there will
be no need for compulsory redundancies over the next two years
unless conditions further deteriorate.
9. In spite of the downturn JLR remains
confident as to the inherent strengths and competitiveness of
the UK automotive industry, particularly its range of products
and commitment to low carbon technologies. Prior to the economic
downturn JLR was solidly profitable and despite the downturn,
Jaguar increased sales during 2008, assisted by the award winning
XF. The new small Range Rover, potentially to be built at Halewood,
and the new Jaguar XJ are among a range of exciting new products
upon which JLR's recovery will be built.
GOVERNMENT SUPPORT
10. JLR has welcomed the Government's recognition
of the problem relating to lack of available credit in the announcement
of the Automotive Assistance Programme in January 2009. While
we would have wished to see the scheme under way earlier, we recognize
that it could play an essential role in releasing finance to car
makers and suppliers. The speed and flexibility with which the
guarantees are provided will now determine the extent to which
it helps address the industry's immediate funding needs. The availability
of guarantees for lending from the European Investment Bank's
Clean Transport facility and for other sources of credit tied
to green investment would also support plans for transition to
a lower carbon industry in the UK as we move out of recession
for those companies like JLR who survive the short term.
11. On 8 April 2009 the EIB announced approval
in principle for a €366 million loan facility for JLR to
support environmental technology projects. This funding would
support a range of projects aimed at delivering more fuel efficient
powertrains for JLR products and provide particular support for
the development of the new small Range Rover at Halewood. The
projects form part of the over £800 million investment JLR
is making in environmental technologies which will deliver a 25%
reduction in CO2 emissions by 2012 and further reductions thereafter.
12. JLR has been engaged in discussions
with both the EIB and the Government in order to secure a partial
guarantee for this loan and may also seek a further guarantee
for financing from other commercial sources under the AAP, although
the level and conditions of these potential guarantees are still
to be determined. The need to secure access to financing remains
critical to our business plans and we hope that these discussions
will reach a successful conclusion in the near future. However
commercial discussions and due diligence requirements are complex
and will take some time still.
13. JLR welcomes the fact that the AAP delivers
potential support for suppliers with a turnover in excess of £25
million. The Enterprise Finance Guarantee Scheme also potentially
offers similar credit guarantees for smaller companies. We have
been working with BERR to highlight these and other opportunities
to our supply base and we understand that a number of companies
have applied for support under these schemes. However, the need
for suppliers to gain access to working capital rather than longer
term investment finance is urgent and it is critical that the
AAP addresses these immediate problems. We have therefore called
for the Government to show maximum flexibility in the application
of AAP rules to ensure that support is made available swiftly
to the widest range of car makers and suppliers. Given the very
substantial support provided by governments to competing industries
in France, Germany and other car-producing countries it should
be a priority to ensure that the support is delivered urgently.
14. Along with the rest of the automotive
industry JLR has been calling for measures to stimulate demand
and we therefore welcome the scrappage scheme announced in the
Budget. We will participate in the scheme although we anticipate
that the benefits to JLR will be limited due to the nature of
the premium sector. This has been reflected in the experience
of the scheme in operation in other countries.
15. We also believe that there is a compelling
case to provide a temporary wage support scheme as is in place
in the Netherlands and Germany. The advantage of such schemes
is that they allow companies like JLR to maintain more people
in employment than would otherwise be the case, and therefore
reduce the need for re-hiring when demand picks up. The industry
awaits a formal Government position on its proposal although we
do not anticipate a positive response.
16. JLR welcomed the inclusion of skills
support in the AAP announcement. The extension of the SEMTA training
compact to £100 million from £65 million and the £50
million Economic Challenge Fund for Universities to work with
businesses offer opportunities to extend and accelerate the skilling-up
of the UK's automotive workforce. JLR has been pleased to be able
to extend NVQ 2 training in business improvement techniques across
all our production facilities. Discussions continue with officials
and the various skills bodies on how the funding can deliver further
skills benefits to the workforce during the downturn.
LOW CARBON
INITIATIVES
17. JLR supports the focus on supporting
the development of environmental technologies. The future competitiveness
and prosperity of the UK automotive industry depends upon its
capacity to embrace low carbon technologies and one of the compelling
reasons for supporting the sector is to ensure that the necessary
skills and R&D capability are maintained.
18. JLR is investing more than £800
million in green technologies delivered at our UK technical centres.
Our technology strategy will transform JLR's current vehicle fleet
and environmental footprint, secure ongoing substantial reductions
in CO2 emissions well beyond the 25% reduction to which we are
already committed under EU legislation. In the short term we are
focusing on lightweight technology, more efficient transmissions
and hybrid development. Looking further ahead, we are developing
plug-in hybrids and are playing a leading role in the UK's development
of electric vehicles. We are working on groundbreaking advanced
research projects, supported by the Technology Strategy Board.
These include Limo Green, a range extended electric vehicle which
helps us overcome the lack of capacity and cost of current battery
technology. This will be a Jaguar XJ demonstrator vehicle on the
road this year with CO2 emissions below 120g/km. Among other projects,
we are developing a small fleet of Range Rover Sport plug-in hybrids,
planned for demonstration during 2010.
19. JLR fully supports the recommendations
of the National Automotive Innovation and Growth Team and in particular
the call for the establishment of an Automotive Council to steer
the transformation of the business environment for the UK automotive
industry. The NAIGT also sets out a common technological roadmap
to achieve low carbon vehicles and calls for "a bold,
large scale pilot market to demonstrate, experiment and build
the new low-carbon personal transportation system including its
infrastructure". The pilot would "test the deployment
into the market of the major bundles of technology outlined on
the roadmap" and would apply to a range of low carbon
vehicles including plug-in hybrids and electric vehicles. We welcome
the support already provided by the Government to low carbon vehicle
development. We hope that there will be a commitment to implement
the NAIGT recommendations, including funding support for R&D
to allow the UK to play a leading role in developing these technologies.
CONCLUSION
20. The UK and global automotive industry
is currently going through the worst slump it has ever faced.
The collapse in consumer confidence and demand coupled with the
freezing of normal bank lending has produced a toxic mix from
which the entire industry is attempting to recover. Although measures
to improve the health of the banking sector will clearly assist
the lending environment, lack of availability of short term working
capital and trade credit remains a critical issue that threatens
the immediate survival of many companies within the supply chain.
Other countries have responded with very significant funding through
consumer credit support, direct funding to companies, support
for short time working and technology investments. It was therefore
vital that the UK Government joined other car producing countries
in stepping in to support the UK's industry. However, it is crucial
that funding under the AAP now be delivered swiftly and with maximum
flexibility in order to address the urgency of the situation and
ensure that UK vehicle manufacturers and suppliers are properly
equipped to invest for the economic upturn when it comes.
May 2009
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