Examination of Witnesses (Questions 53-59)
MR DAVID
SMITH, MR
PAUL EVERITT,
AND MR
GRAHAM SMITH
20 MAY 2009
Q53 Chairman: Gentlemen, welcome to this
second evidence session of our Committee's inquiry into the Government's
support for the automotive sector. We are grateful to some of
you for making journeys to Birmingham, which we have done today.
We took evidence on Monday from Professor Richard Parry-Jones
from the New Automotive and Innovation Growth Team which reported
last week and that was very useful evidence. We are going to Chorley
tomorrow to take evidence in the Northwest from a variety of interests,
particularly the truck and parts sectors. We are very grateful
to have you with us. Thank you for your written evidence. Can
I ask you, as I always do, to begin by introducing yourselves
for the record?
Mr David Smith:
David Smith, the Chief Executive of Jaguar Land Rover.
Mr Everitt: My name is Paul Everitt.
I am the Chief Executive of the Society of Motor Manufacturers
& Traders.
Mr Graham Smith: My name is Graham
Smith. I am Senior Vice-President of External Affairs for Toyota
Motor Europe.
Q54 Chairman: Thank you. I think
it is fair to say when we began our investigation it was quite
narrowly focused on the Automotive Assistance Package and the
other measures the SMMT were calling for, like scrappage, but
the debate has moved on and the publication of the NAIGT report
has broadened the focus of this inquiry. I just want to begin
by asking you two strategic questions about the automotive sector
in the UK. I quote from the report. It says: "over the past
decade the industry's contribution to the UK economy has been
declining as the industry has not been expanding as fast as the
overall economy. This reduction is not due to temporary economic
downturn, but a long-term trend as the consequence of competing
in a mature industry which has seen a drastic shift in a manufacturing
footprint over the past decade towards sourcing from low-cost
countries". Can I ask that strategic question to you, Paul,
first? If this expansion is happening elsewhere, if manufacturing
is moving elsewhere, if expansion in the consumer markets is happening
in Eastern Europe, China and India, for example, are we right
to even try to secure the automotive sector in the UK? Are we
fighting a losing battle?
Mr Everitt: No, I do not think
we are fighting a losing battle. It is absolutely key for the
UK and the UK economy going forward that we do have a productive
and highly competitive automotive industry. 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.
Q55 Chairman: Both to address the
short-term issues and the longer term ones which the NAIGT report
identifies?
Mr Everitt: Absolutely.
Q56 Chairman: I do not know whether
either of you want to add anything because you are both foreign
companies now. I want to ask Graham in particular what it is that
can make the UK continually attractive for foreign automotive
businesses to invest here, particularly to invest in enhanced
R&D.
Mr Graham Smith: There is a range
of issues that determine manufacturing and R&D locations.
We certainly like to manufacture and establish a footprint within
the region where the vehicles are sold. Our region is not just
all of Europe, it goes all the way to Russia, to the Urals, and
therefore we locate our manufacturing facilities, and we have
a number across Europe, strategically in relation to that total
market. Serving the market, serving the customer, being close
to the customer, is issue number one. Secondly, the availability
of skilled and educated workforces is also a very, very important
factor as well. The UK, when we established here in the Derbyshire
area, provided that workforce. We have settled our operation here
successfully. We employ over 4,000 people between Burnaston in
Derbyshire and North Wales. We do not undertake R&D in the
UK. We do in Europe, but it is outside of the UK, so I cannot
really comment on factors in relation to R&D. The last thing
I do want to say is how important the supply infrastructure is.
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.
Q57 Chairman: We will be asking you
at some length about the supply chain a little later on as you
would expect. David, your company is the single largest investor
in R&D in the UK automotive sector. That is correct, is it
not?
Mr David Smith: Yes. We invest
about £400 million a year in R&D, so we are actually
in the top ten UK R&D investors. What I would say about the
industry is that over the last 20 years we have seen good and
bad news. The industry has improved its quality and productivity
hugely in the UK and now has some important strengths especially
at the premium end of the business. Jaguar Land Rover is probably
one of the biggest firms in that part of the market in the world.
Very importantly, the UK has the second biggest premium car industry
in the world after Germany. We also have a strength in engine
manufacturing with our plants in the UK and still very good capability
on research in our universities. There are important strengths
in the UK industry that have not gone away and, in fact, have
been strengthened over the last 20 years. What we have seen, however,
is a hollowing out of the supply base and I know you want to come
back to that.
Q58 Chairman: We will come to that,
yes.
Mr David Smith: In my view, what
the NAIGT report is really all about is saying given those trends
what can we do moving forward to take advantage of the strengths
and actually create some new capability. We are in a very, very
important period now where we are just about on the transition
to low carbon vehicles and if the UK does not take the opportunity
now to invest in industrialising that technology we will find
over time that there is a very significant negative impact on
our balance of payments, on employment and value-added in the
UK. This really is an essential period where we have to make that
investment. Very consistent with the Government's view on industrial
activism, the NAIGT report has essentially laid out a roadmap
for how to make that investment in the future.
Q59 Chairman: If we have time at
the end we will be able to explore the NAIGT report at some length.
It depends how fast the other questioning goes on the shorter
term issues. Paul, there are companies planning to bring new models
to the UK, and Toyota is one of them indeed, is it not. There
is still good news for us in the automotive sector in the medium-term,
is there not?
Mr Everitt: Absolutely. The key
for us like the rest of the global automotive industry is we have
faced an unprecedented set of circumstances. The global credit
crunch and the contraction of credit allied to significant reduction
in demand has created unusual circumstances that we are doing
our best to cope with. Picking up on what David said earlier,
certainly over the recent period UK facilities have been well
invested in, the workforce have demonstrated a capability, flexibility
and determination to win business when up against plants across
Europe and elsewhere, and we have succeeded on a number of occasions
in a number of competitions to retain, and indeed grow, the model
line-up here in the UK. I believe we entered this period probably
stronger and more resilient than at any time in the past. The
key issue for us is being able to sustain our industrial capability
through the recession so that we are able to take advantage of
the upturn as and when it comes.
Chairman: Thank you for that scene setting,
as it were.
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