Memorandum submitted by The Society of
Motor Manufacturers and Traders (SMMT)
1. INTRODUCTION
1.1 The Society of Motor Manufacturers
and Traders (SMMT) is the leading trade association for the UK
automotive industry, providing expert advice and information to
its members as well as to external organisations. It represents
more than 500 member companies ranging from vehicle manufacturers,
component and material suppliers to power train providers and
design engineers. The automotive industry is a crucial sector
of the UK economy, generating a manufacturing turnover of £48
billion, contributing well over 10% of the UK's total exports
and supporting around 850,000 jobs (190,000 directly in manufacturing).
1.2 We welcome the opportunity to respond
to this inquiry. We have put together this short response in full
consultation with our members.
2. EXECUTIVE
SUMMARY
2.1 The UK automotive industry
is a diverse industry that is under significant global and competitive
pressures. In spite of these pressures, the industry is a key
contributor to manufacturing output in the UK and is a high value-added
industry. However, in order to maintain and progress, the industry
needs the right skills base and competitive conditions to continue
to invest in R&D and innovation.
3. UK AUTOMOTIVE—INDUSTRY
SPECIFICS
3.1 The UK automotive industry
is a crucial part of the manufacturing industry in the UK but
is facing serious competitive pressures and needs consistent policies
from the UK government to survive and prosper.
3.2 In the UK, manufacturing remains a
significant driver of innovation, investment, trade and employment.
With an extensive number of businesses involved in the manufacturing
supply chain and the transport services sector, automotive manufacturing
is linked very closely to the UK's overall prosperity as a trading
nation. In recent years the sector in the UK has accounted for
approximately 10% of annual total manufacturing turnover value,
seen an export value of over £20 billion (10% of total UK
export value) and net capital investment of £1.9 billion.
3.3 The UK is home to a large
number of major volume manufacturers and the largest collection
of specialist car manufacturers in the world. Some 100 low volume
specialist car producers are based in the UK, making a positive
contribution to the UK and EU economy through high value-added
products, employment, skills and innovation.
4. RECENT
INDUSTRY HIGHLIGHTS—AUTOMOTIVE
AS A
HIGHER VALUE
ADDED INDUSTRY
4.1 The Committee may be interested
in some significant developments in the industry over the past
few years, which demonstrate a buoyant industry in spite of the
significant competitive pressures which it faces.
— Optare has invested £2
million in an expansion programme at its Rotherham plant.
— Bentley has undergone a £500
million development at its Crewe factory since 2000. It has introduced
five new models since 2005.
— Ford's Dagenham plant, home
to diesel engine engineering and manufacturing has now produced
over 1 million units since 2006.
— Total investment in the Mini
plant at Cowley (Oxford) now stands at £380 billion since
2000.
5. COMPETITIVENESS
OF THE
INDUSTRY
5.1 As outlined briefly above,
the automotive sector is a crucial part of the manufacturing industry
in the UK. Automotive has played a significant role in the shift
to high-technology, high value-added products in UK manufacturing
(the concept of "lean manufacturing" for instance, is
a Japanese concept which has radicalised supply chains in manufacturing).
5.2 The creation of a higher value-added
economy ultimately concerns competition. The automotive industry
in the UK has been under consistent pressures against competing
markets but remains a key employer and significant global force
in automotive. In spite of the closure of two volume passenger
car manufacturers (reducing the number of plants from nine to
seven) and the closure of one commercial vehicle plant, the value-add
has increased to £9 billion in 2006. These closures have
also led to a reduction in net capital investment overall and
the decrease in the amount of employees. However, turnover has
increased between 1999 and 2006.[197]
5.3 Innovation and R&D:
The UK automotive industry spends £1 billion per annum on
R&D, but recognises that investment in R&D can only continue
with the right skills base and conditions for R&D capacity.
To this end, close working with UK government is considered as
essential.
5.4 The government is committed
to reaching 2.5% GDP R&D investment through the private and
the public sector. From April 2008 the R&D tax credit will
increase to 130% from 125% for large companies and the SME R&D
tax credit increase to 175% from 150% (subject to state aids clearance).
Legislation will be introduced in Finance Act 2007 to extend the
SME R&D tax credit scheme to companies with between 250 and
500 employees (mentioned in Budget 2006).
5.5 In the next few months
UKTI will work (with other government departments) to attract
high-tech R&D investment to the UK. The Technology Strategy
Board (TSB) will allocate £100 million for Collaborative
R&D. In addition to the current innovation platforms (which
includes Intelligent Transport Systems), three new platforms will
be developed by the TSB, one of which will focus on environmentally
friendly vehicles.
5.6 The Low Carbon Transport
Innovation Strategy was recently published alongside the UK Energy
White Paper. There is a significant focus on the automotive industry,
with £20 million public procurement funding to encourage
greater market penetration of low-carbon vehicles (for government
fleet) and a £20 million R&D funding programme for low
carbon technology development.
5.7 These developments are
positive for the UK automotive sector, and are likely to encourage
continued investment in R&D. However, concern remains for
tax credit opportunities for larger businesses with low-profits,
where for example, offsetting tax credits against NICs would be
a more appropriate incentive for R&D investment. Investment
in R&D in the UK has been far lower than other European member
states, with Ford accounting for 80% automotive vehicle manufacturer
R&D in the UK (Ford is rated six out of ten in the UK for
investment in R&D, the only automotive company to feature
in the top ten). In the EU overall, the automotive sector is Europe's
largest investor in R&D, spending 20 billion euros. DaimlerChrysler
is the top R&D spending firm in the EU-25, investing £5.2
billion euros per annum. Other automotive businesses in the top
ten across the EU are VW, Bosch and BMW, indicating that automotive
companies are extremely serious about R&D. There is a role
here for the UK government to foster the right environment for
such levels of R&D investment to take place to ensure that
the UK does not lose out to other EU member states and the wider
world in terms of investment from the automotive industry.
5.8 Skills: Improved
skills levels are crucial in the UK, especially against a growing
skills base in BRIC countries. The industry welcomes the development
of the National Skills Academy for Manufacturing (NSAM) but its
work streams and development must fully embrace fostering specific
automotive skills.
5.9 The recently published Skills Pledge has been
signed by several SMMT members. Whilst this is welcome, it tackles
Level Two skills alone, which will not help to increase industry
value-added. Focus must also be given to skills that will increase
the R&D and innovative capabilities of automotive employees,
if the UK is to remain an attractive place for manufacturer investment
and compete in an increasingly global economy.
5.10 Participation in the
government's ambition to become a world-class leader in skills
following the Leitch Review of Skills in England (although automotive
businesses are located throughout the United Kingdom) will be
important for the industry. The automotive industry welcomes,
as an adjunct to this, the "AIGT refresh" (Automotive
Innovation and Growth Team) as a key development in identifying
skills needs and gaps. It is only where there is a changed perception
and also a change in government policy working increasingly with
relevant stakeholders that skills shortages will be addressed.
6. CONCLUSION
6.1 The automotive industry
in the UK is a high value-added industry, and has a significant
role to play in furthering the position of the UK as a higher
value-added economy. However, the competitive and regulatory pressures
that the industry faces have made trading conditions challenging.
The UK economy cannot survive by relying on the service industry
alone, but the strengths outlined in this short paper of the UK
automotive industry demonstrate that the sector is crucial to
the UK's overall prosperity and public policies should seek to
take account of this role.
November 2007
197 Turnover has increased from £44.2 billion
in 1999 to £48.5 billion in 2006, SMMT's Eighth Sustainability
Report, p44 Back
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