Examination of Witness (Questions 260-279)
MRS ANDREA
PAVER, MR
DENIS CULLOTY
AND MR
STEVE BARFOOT
21 MAY 2009
Q260 Mr Wright: Are you aware that
fed through to Government as well?
Mr Barfoot: I am not sure. I could
not answer that question.
Q261 Chairman: I want to ask you
about the issues for you in terms of financing your operations
with the banks. What are the issues there? Is it finding customers
to purchase the vehicles or keeping your inventories going? What
are the issues you face in this environment?
Mr Barfoot: The issues really
are quite multi-layered. Firstly, there is the issue of funding
ourselves in terms of accessing securitised debt markets which
would have been a very straightforward exercise if we turn the
clock back one year, but in the last six months it has been very
challenging for us to find the right forms of funding for ourselves
to keep our own liquidity at the level it needs to be. That is
the first issue. Secondly, moving on to our dealers, a lot of
dealers have vehicles in stock which they do not have customers
for, so we are funding those vehicles on behalf of the dealers,
they have to make payments to us, so they are paying a considerably
increased amount of money because previously those vehicles would
have just been moved through to end users, end purchasers, but
now they are currently parked in stock. The dealers' liquidity
is under strain from that angle. Thirdly, in the area of our customers,
our customers are under a lot of pressure along the lines I indicated
in the previous answer, they have not really been able to access
the sort of funds that they need to. While certain programmes
have been brought to the market to help customers, they have limitations.
For example, the Enterprise Finance Guarantee Scheme, whilst a
very useful scheme in certain respects, is not planned to fund
asset purchases until the end of 2010. There are programmes out
there but they have certain limitations and do not necessarily
deliver the solutions that are needed.
Mr Binley: The way the banks are not
putting into effect many of the Government projects that have
been talked about and have raised such expectation is the nub
of liquidity at the moment for many small businesses. That is
part of the problem. Let me just give you my experience. If I
go in there and kick a door down things change. That is what concerns
me, that it needed an MP to go in and kick a door down. You go
in at the top, all hell breaks loose, alarm bells ring right down
through the organisation and things happen. That suggests to me
there is something seriously wrong with the total attitude of
banks and their inter-relationship with Government. The whole
thing is not being managed.
Chairman: I do want to move on.
Mr Binley: Hang on, Chairman, you got
into this area. You hang on a minute. What is it that you see
as wrong? Is it bureaucracy? Where are the problems in actual
practical terms?
Chairman: In the schemes or the banks?
Q262 Mr Binley: I am talking about
a small business, one of your suppliers or end users, going to
the bank and saying, "I'm in some trouble, I want some money".
Mr Barfoot: The problem that they
will encounter in that situation is basically an inconsistent
approach, for starters. We have feedback from our customers where
different branches of the same bank have given different stories
where, for example, one bank will say, "We're not prepared
to utilise the Government's support programmes because we would
require directors' personal guarantees or some sort of asset security
as mandatory"; another customer talks to a different branch
of the same bank and gets an entirely different story. That is
the first thing. Other things customers have said to us are that
banks are saying there is too much administration involved in
accessing these schemes and basically if they did it would not
make any difference to the end result on their decision in terms
of whether they were able to help or not.
Mr Binley: That is vitally important.
Chairman: We are doing a separate inquiry
into the Enterprise Finance Guarantee Scheme. I want to focus
back on the automotive sector now, please.
Q263 Mr Binley: I think this impacts
massively on the automotive sector. We will not have a further
row, let us move on. I got the feeling from our earlier conversations
that you felt there was not a particularly helpful view of the
automotive industry and you have reiterated that today, you feel
you are one of the industries on the blacklist, which is most
concerning. You relate some of that to relationships with BERR.
Is there a connection between money, the banks and the relationship
with BERR?
Mr Barfoot: What I would say in
that area is BERR needs to be more responsive and rapid in the
solutions that it is providing. One of the schemes that is currently
under discussion is in the area of asset-backed securities. This
discussion has now been channelled through the Finance and Leasing
Association and they have been making representations for the
industry in general to BERR. That discussion has been running
for nearly six months now. Recently another hurdle that has come
up in terms of that discussion is in terms of how state aid can
be provided in relation to asset-backed securities and whether
the banks would be entitled to offer such a scheme in the first
place, and that has taken nearly six months to come out. These
discussions move at a very slow pace. If such a scheme was approved
tomorrow, most lenders acknowledge they would need at least something
like three to four months to set up a scheme. Even if the scheme
was put on the table tomorrow you are talking about the thick
end of a year from start to finish from the discussion commencing
to the solution being delivered, and that is if a solution was
provided tomorrow.
Q264 Mr Binley: The Chairman has
drawn me to my duty as a member of this Committee. I must ask
you certain questions. I want to ask about Government policy in
terms of its targeting. Is there too much emphasis on the car
and small van market? Do you feel left out?
Mr Barfoot: I would say yes to
that question. The commercial vehicle, the heavy truck sector
is regarded as an also-ran. It is considered as a second level
player. A lot of the discussion from the associations, such as
the Finance and Leasing Association, and to a certain extent BERR,
does focus on the car and more recently, because of the LDV situation,
the van sector, and commercial vehicles are not given the prominence
that they deserve.
Q265 Mr Binley: I am grateful for
that. Can I ask to what extent Government policy is having an
effect in preventing companies from abandoning projects or, indeed,
moving them out of the UK? Is there a concern there?
Mr Barfoot: Are you talking about
commercial vehicles?
Q266 Mr Binley: I am talking about
commercial vehicles.
Mr Barfoot: The trucks themselves?
Q267 Mr Binley: Yes.
Mrs Paver: The product.
Mr Binley: Have you seen that yourself?
Chairman: Not the product, the investments,
the strategies and the future.
Mr Binley: Is there thinking that perhaps
there is somewhere else to go amongst yourselves or your suppliers,
"Maybe we ought to be situated in another place"? Will
this add to that movement or not?
Mr Hoyle: To help Brian, you have got
your Eindhoven plant, is the rationale that you move to Eindhoven
or to your other plants, as you showed us on your world map? Are
you happy with the UK? Is that right, Brian?
Q268 Mr Binley: Exactly.
Mr Culloty: There is nothing within
Government policy that encourages further R&D spend in our
facility, it is neutral. There is nothing that works against it
but there is nothing in the programme that says, "Please
do this here and here is some meaningful support".
Q269 Mr Binley: There is a view among
industry that Government should be neutral and they should not
get over-involved. Is that your view or not?
Mr Culloty: Generally you can
take that view, but in the current challenging climate I think
industry needs some specific support for limited time duration.
Q270 Chairman: What we heard in Birmingham
yesterday was in the car and small van sectors our competitors
in Germany, France and other countries are actually making that
investment faster and more quickly than the UK. Do you see that
in your sector too? Can you make a comparison?
Mr Culloty: I would say we do.
I cannot bring the specific facts to bear. The Dutch Government
supported DAF and there was definitely a different strategy there
compared with the UK.
Q271 Chairman: I also want to ask
you about the complexity of the Government relationships you have.
I know sometimes in my own constituency people complain about
the number of agencies they have to deal with and the conflicting
advice. Industry thinks there should be co-ordinating agencies,
that there is a lack of confidence and lack of resources to the
Business & Enterprise Department itself. What do you feel
about the structure that lies behind your needs?
Mr Culloty: I think the structure
is impossibly difficult and challenging. We have a couple of specific
contacts who we leverage at NWDA and BERR and very often when
we meet these people we say, "Before we start, please explain
the intertwining structure of these different functions and how
they fit together", but even after an hour of that explanation
we are not very much the wiser. It is incredibly complex, incredibly
convoluted and could be simplified significantly.
Q272 Chairman: Brian wants to ask
you about skills in particular. I was struck by the SMMT representation
to our Committee, which you have probably seen and contributed
to, which really said that the Budget did nothing to help your
sector at all and could have taken various steps. What would you
have liked to have seen in the Budget that was not there that
might have helped your sector?
Mr Culloty: One of the specific
things the sector was looking for was an incentive for operators
to operate newer, low emission vehicles. There are some instruments
to do that, like Reduced Pollution Certificates, for example,
that allow people to pay slightly less excise duty in return for
running a lower emission vehicle. It is a bit like some of the
car excise duty incentives, not massive amounts of money but enough
to push people into a buying decision now. We were disappointed
that did not come through the Budget.
Q273 Chairman: What about the Euro
5 deadline, does that mean anything for the structure of the market?
Mr Culloty: It brings a good deal
of confusion right now. Certainly our industry is ready and well-prepared,
but we are looking for an orderly transition from Euro 4 to Euro
5. As for working on such a short lead time with orders, we really
have not got a clear picture. Many of our suppliers are saying,
"Please tell us exactly what mix of vehicles you will build
in eight weeks and 10 weeks" and we cannot always answer
those questions to their satisfaction. It is a complicating factor.
Certainly technically we are ready for it and would endorse it
is the right way to go forward.
Q274 Chairman: Commercially it is
challenging?
Mr Culloty: Absolutely, yes, it
is another challenging dimension.
Q275 Mr Wright: Just very quickly
on the research and development side. The Government is quite
rightly pushing the R&D budget to say that is a way forward,
but I have heard that there is more emphasis on the research than
the development. Would you say that is the case?
Mr Culloty: Certainly the TSB
is more focused on the riskier longer term research, yes, and
by their own definition there needs to be a high percentage of
research to qualify for the appropriate grant. These things are
normally 50/50 funded, for example, so it does require us making
an investment in some of that research at this stage and with
the current challenging economic environment we cannot really
do that. We would like to see the timescale of the deliverables
of those projects brought in a little bit so that they are meaningful.
Q276 Mr Wright: Would you then say
the development side is left more to the industry rather than
to the Government?
Mr Culloty: Certainly it is right
now, yes, but in the current hard times we are not just looking
for support with long range research, we are looking for support
with the next step into early development as well.
Q277 Mr Wright: So one of the Government
policies you would like to see is greater emphasis on the development
side to assist industry?
Mr Culloty: Absolutely, yes.
Q278 Mr Wright: That leads me on
to skills and training because it is well-known that those industries
that can see their way through this recession by holding on to
their skilled and trained workforce are going to come out much
stronger at the end. If you are in a situation where you have
to lay off a lot of the staff then quite clearly it is going to
be difficult to get those back again. Do you think that the policies
in place at the present time are the correct ones in trying to
encourage companies to keep their trained workforce?
Mr Culloty: They do not do very
much for us is the honest answer right now. We have a little bit
of support from Train to Gain for some of our employees who are
aspiring to higher things. We do not get very much support around
our apprentices. We do not get much support around our graduates.
We are in a position now where we have lost the great percentage
of our workforce and we are at a pretty critical skills level
now, so we do need to be sure that we have the right support in
place to protect that skills level.
Q279 Mr Wright: So you are saying
that there should be more emphasis on skills and training for
the future as much as there is for the reskilling and retraining
of the present staff that you have got?
Mr Culloty: Absolutely, yes.
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