Examination of Witnesses (Questions 80-99)
MR DAVID
SMITH, MR
PAUL EVERITT,
AND MR
GRAHAM SMITH
20 MAY 2009
Q80 Miss Kirkbride: I understand
the sensitivity of what you are saying because the company's future
clearly is quite dependent upon this and the green technology
aspect is very important for UK plc, but given what we have heard
from ministers recently about the need to invest in new green
technology and given that you are going to be at the hub of all
this I find it incomprehensible that this is taking such a long
time. This conflicts with everything we hear from ministers at
the Despatch Box. Is there a tetchy civil servant or something?
Mr David Smith: I cannot discuss
the details of the negotiations but we want it wrapped up as quickly
as we can.
Q81 Miss Kirkbride: Do you think
it is right that the Government has gone down the road that this
money, in its own words, is about, "Projects that deliver
demonstrably new activity and investment that would not otherwise
happen without the provision of Government support"? Has
that also been the right way forward for these loan guarantees?
Mr Everitt: Perhaps I could address
that from an industry perspective.
Q82 Miss Kirkbride: By all means.
Mr Everitt: This is the key question
of what is termed as additionality and it does create some significant
problems. As we have already alluded to, the problem for most
companies is not having the available finance to invest or sustain
their businesses. In those circumstances, without the loan guarantees
the investment would not happen. One of the challenges is that
is not always as fully understood or as flexibly interpreted as
we would like and perhaps the approach is adopted in other countries.
For us, without the loan guarantees most projects will not happen
but that is not necessarily the approach adopted once you get
into the details of schemes or individual projects. I would caution
here that certainly our understanding from the feedback we have
is that Government by and large, and the civil servants, do try
to interpret as flexibly as they can but sometimes issues still
arise. One of the difficulties obviously is we are in a pressured
situation and people want to get these things done.
Q83 Chairman: Can I just interrupt
Julie's questioning for a second? We had very compelling evidence
on Monday from Professor Richard Parry-Jones. I know all your
members are important to you, Paul, but his compelling evidence
was that JLR is the key to the future of high value-added automotive
manufacturing in the UK and that without JLR the game is basically
up. I have heard very big Tier 1 component suppliers also say
to me that their business in the UK depends on JLR. Do you share
that view?
Mr Everitt: Clearly JLR's Chief
Executive is sitting next to me! It is very important. However,
I would also say there are a number of other significant investors,
particularly in R&D here in the UK and potential investors
in R&D. It is large and very important because it is perhaps
the largest single one, but Ford, as an example, is a very significant
investor in R&D here in the UK and Nissan, whilst not quite
as substantial, is a company that is growing in terms of its investment
and potential investment here in the UK, and there are a variety
of others. I would not want to give the impression that only one
company matters. David will be able to talk for himself, but I
do not think it is helpful in some respects to focus all of our
hopes on one single company. It is probably an unhelpful burden
for any one company to bear and we have been there before, as
you will probably recall, particularly here in the West Midlands
where we focused all attention on one particular company. We are
a strong and diverse sector here in the UK and we need everybody
to be playing at the top of their game to make progress, but I
think that is doable.
Q84 Chairman: I was asking that question
to ask you, David, what more you think Government could do. I
suspect that the BERR ministers are very frustrated—this
is a comment in general terms—about the relations with the
Treasury, which is often the way. What recommendation would you
have us make to Government about your current negotiations?
Mr David Smith: Beyond trying
to get them wrapped up as quickly as possible I cannot be too
specific. I see Jaguar Land Rover at the hub of a lot of things
in the UK in terms of technology investments, but we do need other
partners. For instance, we are working with 20 universities in
the UK at the moment and we have a very good research base still
in automotive technologies in the UK.
Q85 Chairman: As your ultimate boss,
Mr Tata, observed recently in the Sunday Times.
Mr David Smith: Right. Equally,
there are a lot of other smaller companies, research institutes,
that are involved in our projects: Nissan, Lotus, Ricardo, other
companies as well. It is not just about us alone, it is about
our partners and us. The whole point about the technology recommendations
that were made in the NAIGT is if we want to seriously have a
low carbon vehicle industry in the UK we are going to have to
invest in it. The Germans are investing hundreds of millions of
pounds in their vehicle technologies and there are similar investments
from the Japanese, the US and certainly the French. We either
choose to make these investments now or we do not. Jaguar Land
Rover is a big integrator of that investment in the UK. That is
really essential. If there is one message I would get across it
is that the reason the industry in the UK asked for help was because
it does not just want to survive and decline over the next period,
it actually wants to get itself through this period and invest
strongly in the future, and that is what we are trying to do,
maintain the skill base, and innovation and technology investment
can give us a good future.
Q86 Miss Kirkbride: You were happy
with the way it was structured with the emphasis on green technologies?
Mr David Smith: I think the emphasis
on green technologies is very important. As I think I indicated,
there were different aspects, and Paul mentioned one of them around
additionality, which is always a difficult issue. There were other
aspects about the size of companies. There is a little bit of
a gap between the various Government schemes at the moment. The
AAP applies to companies with a £25 million turnover and
above, and at the moment the minimum size project is £5 million.
Q87 Chairman: We will come to that
in more detail later as well. I like to keep a structure to these
sessions, I apologise.
Mr David Smith: There is a gap
between some of the schemes that needs more flexibility.
Q88 Miss Kirkbride: How effective
has the programme been in stopping things that you all might be
doing from moving abroad or just being abandoned altogether?
Mr Everitt: It is still in the
process, if you like, but everywhere else across Europe and certainly
the world is facing very similar circumstances. The judgment is
in a number of other countries it has been easier for companies
to access finance and perhaps whilst at the moment that may not
be such a huge issue, it certainly sends a very conflicting signal
to the global investors who are important both in terms of vehicle
manufacturers but also, as you mentioned, the Tier 1 and Tier
2 companies as well.
Mr Graham Smith: If I could add
a couple of comments. First of all, there is no company more focused
on environmental technology on a global basis than Toyota and
our full hybrid technology has been in the market for 10 years-plus
as an indication of that. The development of low carbon markets
is important to the future. It is important in relation to higher
level emission targets that this country and others have to meet
and from wider societal points of view. Therefore, the focus on
green technologies and the development of low carbon intensity
products of the future is vital. I come back to the supply base.
The environmental focus is also important in the supply infrastructure,
but the balance between the environmental focus and specific projects,
new investment—again, the additionality issue—versus
working capital and funding to maintain operations despite the
25% reduction, often more, in terms of level of demand they have
experienced is equally pressing. I am not saying that the environmental
focus is not appropriate in the supply chain; what I am saying
is that they have got possibly more basic needs in terms of working
capital to enable them, frankly, to survive, funding to enable
some of them to consolidate to maintain a presence in the UK and
to not end up restructuring around sister plants in other countries.
Quite a lot of the supply base has an international dimension
to it.
Q89 Miss Kirkbride: My last question
was should it just have been based on green technologies and in
a way your answer was that it could have done with looking a bit
wider in other respects.
Mr Graham Smith: In relation to
the supply chain especially some of their needs are more basic
for working capital, et cetera, without necessarily the
green technology link, that is the point I am making.
Q90 Miss Kirkbride: Would the others
agree or have another dimension that it should have gone down?
Mr Everitt: Our understanding,
and certainly in practice, is that there is a reasonable level
of flexibility in how that is interpreted which by and large should
be okay. There are probably some bigger issues to do with the
effectiveness of the programme than the focus on green technologies.
Miss Kirkbride: Like how long it takes.
Chairman: We are coming to that very
shortly.
Q91 Mr Hoyle: Obviously Julie has
said the jewel in the crown is JLR, and you are one of the jewels
of the crown in the Northwest and what we have got to do is look
at the four regions, Northwest, Northeast, East Midlands and West
Midlands. What we are talking about is green technology and JLR,
and it is very important, but I think you would reflect as well
you are the premier division in the motor industry and there are
other parts that are just as important in the UK. With what you
have said today, and I am not trying to push you, David, I understand
everything is very sensitive, what one message do you believe
we should put into the report and take back to Government that
has not come out yet to help you?
Mr David Smith: It is about accelerating
the release of the EIB and the other cash that is required by
the industry and us.
Q92 Mr Hoyle: Paul, have you a message?
Mr Everitt: I have got several
probably. For me, the key is Government needs to remain focused
on the existing mechanisms and ensure that sufficient resources
are put into them so they do deliver. What we do not want is another
mechanism, if you like. We have some that could be effective,
we just need to work them.
Q93 Miss Kirkbride: What do you mean
by "resources" there? Are you talking about manpower
to do it or the amount of money in the pot?
Mr Everitt: Everything. Certainly
to ensure that they are adequately resourced and where there are
needs they are addressed.
Q94 Chairman: This is an important
point. Are you saying you think there may be a shortage of Civil
Service resources actually dealing with the scheme?
Mr Everitt: My impression—
Chairman: Do not be shy, please. This
is an important point.
Q95 Miss Kirkbride: This is your
chance to put the point.
Mr Everitt: It is true that the
Automotive Unit is relatively small and dealing now with a significant
number of major schemes. Equally, they have been allocated new
resources but it is as and when they can as opposed to, "This
is a key and essential series of programmes that have to be resourced
as soon as we can to the best that we can". They are trying
their best within the resources that they have.
Q96 Mr Hoyle: Do you think expertise
could have been brought out of the Development Agencies and put
into Government to help this situation? I just wonder because
there is good expertise in these Development Agencies, the RDAs,
and there is a shortage of understanding within Government whether
we could have brought some of that in to speed up the delivery.
Mr Everitt: I made a number of
comments that people did or did not agree with. I characterised
the situation towards the end of last year and the beginning of
this year as a national emergency. From an SMMT point of view
we offered our resources to Government to assist them in the areas
that they needed and we ran a number of seminars and other things
to try and communicate what was available to people who needed
it. Certainly more of that has been required in a variety of different
aspects to try and get things done.
Q97 Mr Hoyle: Have you got a message,
Graham, or are you happy with the message?
Mr Graham Smith: I have repeated
it enough times. Our concern is the integrity of the supply chain
and the application of the schemes to the smaller companies often
of international parentage.
Chairman: Before I move on to Tony Wright,
Lembit has a supplementary and I have a point to make. We are
going to the Northwest Development Agency tomorrow. I should say
we are very grateful to Advantage West Midlands for their hospitality
and facilities. I did not say it when we began and I should have.
Q98 Lembit Öpik: I do not want
to push you on this, Paul, but it is really for the avoidance
of doubt. Our objective is to do something useful for your business.
I would like to pin you down on this, and you are not going to
be making enemies either in this Committee or the Government.
Is it your view that if the Government invested in greater human
resources to apply this scheme the cost of that investment would
be paid back in the net return economically to the country?
Mr Everitt: That is quite a difficult
judgment. We have moved on quite a bit in the process, so we are
talking about how quickly did a team get established, how resourced
were they and are they able to deal with the issues. It is not
a straightforward issue because some of the concerns that we have
with the programme actually have nothing to do with Government
and are really to do with the appetite within the banking sector
to do business with the automotive industry. We certainly have
a number of examples where the Government and team have done their
job in getting a project through the various mechanisms only to
find there is not a bank willing to support the business.
Lembit Öpik: We do not want to make
a recommendation that is pointless. We will be coming back to
credit later on, Chairman.
Q99 Chairman: Funnily enough, that
was the entrée to my question. One of the major themes
of your written evidence, and I think this is the right moment
to ask you, was this catch-22 situation, the circularity of the
programme. You emphasise it is a guarantee, you have got to have
commercial lending in place, or the EIB lending, yet the banks
are not lending you the money, so if there is nothing to lend
there is no guarantee available. Talk to me about the situation
with the banks.
Mr Everitt: I can only give you
the impressions that I have had from a number of companies particularly
within the supply chain who have worked the process who do feel
they have viable propositions to make only to find that their
banks are not interested in coming forward. This is a broader
theme, it is not just around the Automotive Assistance Programme
because a number of the other more general schemes that Government
have also effectively rely on the bank coming forward to support
the company and to be involved. Certainly the feedback we have
had is that it is not even a question of how much it costs, the
impression companies have is that banks at large have taken a
view to reduce their exposure in the automotive sector and irrespective
of the viability of the business they are not going to be involved.
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