Examination of Witness (Question 60-79)
PROFESSOR PETER
NC COOKE KPMG AND
MR ERIC
WALLBANK
11 DECEMBER 2007
Q60 Mr Weir: We have touched on it
already about climate change and the effect on the motor industry.
The Managing Director of BMW UK was quoted as saying that "A
determination to tax larger cars out of existence threatens smaller
manufacturers such as Jaguar and Land Rover." That seems
to be at variance to what you were saying about luxury brands
earlier on. Have efforts to tackle climate change had a significant
impact on the premium car industry?
Professor Cooke: I think what
we are going to see, over time—and I suppose Freelander
is an example of it—many factories working on making their
vehicles much more environmentally friendly. It is happening—manufacturers
are putting large amounts of money into it, but they need the
time to be able to do it. They are working sometimes against unrealistic
timescales, but manufacturers are very aware of the environmental
issues and looking to improve their products. We have been through
a situation in terms of paints over the last decade or so and
we are now in the situation of looking at engines and getting
more efficiency, more effectiveness out of engines, and at the
same time some manufacturers gradually downsizing their vehicles,
putting more and more equipment inside smaller and smaller body
shells. So I think what we are going to see is the industry over
the next few years with smaller, more luxurious products, but
it takes time.
Q61 Mr Weir: We hear a lot about
this but looking at advertising generally you concede that all
manufacturers are still launching new luxury vehicles, new SUVs
as part of the process of keeping a business going, and I appreciate
that. You talked earlier about the luxury brands, the Jaguars
are successful because they are moving up market and their base
level price which people will pay because they want that car.
Is it a problem for a specialist manufacturer or is it a problem
perhaps for a more general manufacturer of some luxury brands
and some mass market brands, and is there a real problem in the
mass production brands?
Professor Cooke: To be honest
I think it is a problem for everybody because of the investment
that you have to make in it and the time that it takes to develop
and to introduce those changes.
Q62 Mr Weir: You mentioned earlier
the time limits and obviously the European Union's proposed limit
on vehicle carbon dioxide emissions will have an impact, undoubtedly,
but will Land Rover and Jaguar be able to meet these limits as
an independent company?
Mr Wallbank: I think there are
two challenges. One is the investment in the new technology is
huge and it is not yet certain which of those technologies will
win out in terms of the most attractive commercially and in the
market place, so there is a lot of uncertainty around what is
going to be the most appropriate solutions to the power train.
The other angle here is if the European Union, as I believe it
has, proposes—and you will know more about this than I do—an
absolute level of which they expect vehicle manufacturers' fleet
of vehicles to meet in terms of emissions. That is much more difficult
to meet if you are a premium brand producer who typically has
more expensive cars with larger engines than if you are a volume
producer producing lots of small cars. So there is a specific
challenge that is unique to companies that are at the premium
and the top end of the market, and I believe that will not only
affect a Jaguar or a Land Rover but also will affect a number
of the other premium brand companies.
Q63 Mr Weir: From that, then, for
the manufacturers of large, luxury vehicles taxation is not going
to be the thing that hits them because people will buy the product
more or less whatever the cost is, if they are Bentleys or large
Jaguars.
Q64 Mr Wallbank: Yes.
Q65 Mr Weir: But if there is an emission
level above which they cannot go then that is going to be a problem
for them looking to that emission level.
Mr Wallbank: And in that sense
what is called the supply side controls are more important than
the demand side because as consumers people will be voting with
the wallets and bought expensive cars that are relatively high
emissions irrespective of price, or price is less of an issue.
The supply side, if there was an absolute limit on emissions on
a fleet of vehicles that had to be met by a manufacturer that
would be of particular concern to any particular company that
only supplied larger vehicles which tend to have larger engines.
Q66 Mr Weir: The Government is very
keen that a focus on green technologies is the best way to support
UK manufacturing. Has there been a spur towards innovation in
the industry resulting from increased public and government in
environmental issues. It seems to be that the Japanese, Toyota,
Honda in the lead with hybrid technologies certainly, but Ford
has been investing in fuel saving hydrogen technology. Is this
following on R&D development within the UK? I believe the
Japanese are certainly doing it in Japan rather than here, I think.
Professor Cooke: The Japanese
are certainly leading in it at this stage. To be honest I am not
so au fait with who are the leaders in terms of the players.
Certainly all the manufacturers are addressing it and spending
very, very large sums on it, but the Japanese happen to be the
leaders at present. I have no doubt that Europe will catch up
quite quickly.
Mr Wallbank: I would add to that.
I think the Japanese are leaders in one particular technology
which is hybrid technology. There is no certainty that that is
the best solution to environmental concerns. Indeed, there is
a lot of evidence to suggest that it is not necessarily the best
answer and I think what the manufacturers would wish to see is
a drive towards initiatives and legislation that is independent
of the technology that is used. For example, a modern diesel,
as maybe the subject of innovation by companies within the UK,
can be more environmentally friendly than a hybrid vehicle, but
again we seem obsessed by the hybrids.
Q67 Mr Weir: So you are not in danger
of getting to the VCR-Beta debate here that hybrid is a word that
is in the league within the market and the more cars there are
in the market with that the more likely that is to become the
dominant technology.
Mr Wallbank: I do not know the
precise data but if you look at the percentage of the UK market
that is taken by hybrid vehicles it is a very small number. I
do not know what it is but it is a few percentage points.
Q68 Mr Weir: An awful lot more than
a lot of the other technologies.
Mr Wallbank: Modern diesels take
more than 40% of the market.
Q69 Chairman: Can I ask whether you
think you share Ford's concern expressed to us that the proliferation
of taxation regimes across Europe—and even within the United
Kingdom, the different parking charge regimes and so on, congestion
charge regimes—are making it absolutely impossible for the
industry to approach this in a coherent way because it has such
a fragmented policy environment in which it is operating?
Professor Cooke: I think there
are a number of different issues there. Across Europe we have
different stages of development in terms of markets and looking
at Central and Eastern Europe they are in the situation that we
were in in the UK maybe 15, 20 years ago. So I think one has those
sorts of changes that one needs to look at the situation. As Eric
said just now, a proliferation of different things—people
trying out different thoughts, different ideas. Are we going to
come to a policy across Europe in terms of parking charges? No,
I have my doubts because different countries, different cities
have been built in different ways and, dare I say it, the politicians
in different countries have different attitudes to it and whilst
a single policy would be wonderful, a single policy would probably
be right for a number of countries but not right in other situations.
Chairman: Adrian Bailey has one very
important question, which is the most important question
of the session, in my view.
Q70 Mr Bailey: It is self-evident
that you would not be here today if this was not an incredibly
important issue for the Government. What do you think is the most
effective role for Government during the sale of companies like
Jaguar and Land Rover?
Mr Wallbank: It is an interesting
question because this is the sale by one overseas corporation
of a UK subsidiary that is probably going to be sold to another
overseas corporation. So it is interesting in that sense; it is
not a UK-owned company being bought by an overseas company. It
is a change of ownership from one overseas owner to another. I
would have thought that, quite rightly, Government should be seeking
assurances both from the vendor and the buyer as strongly as it
could about the future continuation of activities and investment
into the UK. The extent to which the new buyer would guarantee
anything in terms of investment or future employment levels is
a separate question, but I would have thought that quite rightly
it should be a subject that should exercise parliament and should
exercise people in having conversations with the potential buyers.
Professor Cooke: And looking to
establish immediate good relations with the final buyer. I think
that is important.
Mr Wallbank: Yes, whoever they
may be.
Q71 Mr Bailey: You could envisage
a scenario where over intrusive exercise of government involvement
could actually deter a potential buyer and positive outcome?
Professor Cooke: Yes, I think
so. I think it has to be a matter of mutual trust between Government
and between the new buyer because Ford is an independent company,
it wishes to sell part of its operations, and it is almost up
to Government to be—dare I use the phrase?—friendly
towards the new buyer, to offer help, to see how it can help that
new buyer to develop its UK activities.
Q72 Mr Bailey: What do you think
the Government could do to offer help to any potential buyer?
Professor Cooke: The first thing
I would say would be not to be too intrusive. A new buyer is going
to have a lot of things to deal with in terms of acquiring that
company. Perhaps work with them in terms of not making too many
short-term demands on them; let the new buyer shake down its acquisition.
I am not going to dig a hole for myself!
Mr Wallbank: I have nothing to
add to that.
Q73 Chairman: So the suggestion from
Unite, the Union, the Government should take an equity share at
the time of the transfer is not one, I presume, that you would
embrace warmly. They say that that would protect money put in
by the taxpayer over the years for various reasons, for the two
companies. That is not a suggestion that you would embrace warmly?
Mr Wallbank: It is not a question
of whether I embrace it, it is a question of whether the new owners
would also welcome that.
Q74 Chairman: It is offering the
equity share, is it not?
Mr Wallbank: In terms of protecting
government monies that have been provided to the companies, I
would have thought that there were some guarantees that went with
that in terms of whatever monies were provided were to sustain
employment in some way.
Q75 Mr Clapham: The question of an
equity share, do you think that there is any chance of that anchoring
down Land Rover and Jaguar here, even with an Indian buyer?
Professor Cooke: It is not my
field but personally I wonder over time just how effective that
would be because it is a company which would be part of another
global company. How much can you tell a global company what it
is going to do, I think is what it comes down to. That is what
the equity share would be about, or the golden share or however
one looks at it.
Mr Clapham: We did see a golden share
exercise of course in Volkswagen right up until recent times.
Q76 Chairman: You cannot put a golden
share back in where there is not one now, that is the trouble.
Professor Cooke: With a minority
stake you have a stake but you do not have control of the company,
so the decisions made by the company would still be largely made
I suspect as otherwise if there is a minority stake, and it would
not necessarily mean that the right decisions were made in the
best commercial interests of the company.
Q77 Mr Binley: I want you to dig
a hole, I really do. Congestion charges are now being based, or
will be based on the size of the vehicle and that can spread from
London, and Manchester is now interested in congestion charges
and I guess that any local government that is short of money—and
that is most of them—could well see it as a revenue generator.
Do you think that that is good for the car industry, particularly
the premium car industry, or bad?
Mr Wallbank: I would say that
congestion charges should be based on the emissions of the vehicle.
Professor Cooke: It goes back
to what I was saying just now, in terms of manufacturers looking
at their vehicles to downsize them, looking to downsize the overall
size of the vehicle, increase the luxury, decrease the emissions
from those vehicles. Those things are happening. How quickly are
we going to introduce even further congestion charges? Yes, the
industry inevitably is going to react against congestion charges
because it is another cost, it is another indirect tax.
Q78 Mr Binley: So an incentive not
tax?
Professor Cooke: I see congestion
charging as being a tax, yes.
Mr Wallbank: I think what currently
irritates some manufacturers about the current congestion charge
in London is that it preferentially supports one technology.
Q79 Mr Binley: Hybrids.
Mr Wallbank: Hybrids in particular.
And so we get the slightly ironic situation where we get SUV 4
x 4 hybrids, which are not particularly environmentally friendly,
which are exempt from congestion charge but the modern high performance
diesel is subject to the charge. So any move that made any congestion
charging technology agnostic I think would be broadly supported
by the manufacturers.
Chairman: We could explore that for ages
but it is getting a bit off the remit of protecting higher value-added
economy and we must not do that. Gentlemen, it is time to call
the session to a conclusion. We have found it a very useful introduction,
both to the specific example of Ford and also more generally into
the inquiry we are doing into higher value-added economy in the
UK. We are very grateful to you indeed. This is the last meeting
of the Committee before Christmas. Our next meeting will be with
Lord Jones of Birmingham on 8 January, which we are all looking
forward to again—I know he enjoys coming before this Committee.
I wish you all a very happy Christmas.
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