House of COMMONS
MINUTES OF EVIDENCE
BUSINESS & ENTERPRISE COMMITTEE
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Taken before the Business & Enterprise Committee
on Monday 18 May 2009
Peter Luff, in the Chair
Mr Brian Binley
Mr Lindsay Hoyle
Miss Julie Kirkbride
Mr Mark Oaten
Mr Anthony Wright
Witness: Professor Richard Parry-Jones, CBE, Chairman of the New Automotive Innovation and Growth Team, gave evidence.
Chairman: Thank you very much indeed
for coming and kicking off this whole inquiry into the automotive sector. We are going on Wednesday to
Q1 Mr Hoyle: The idea behind this is to establish and put on record why the automotive sector needs to be supported. You have done the NAIGT report and it includes an assessment of the current state of the automotive industry and its relative strengths and weaknesses. I wonder if you could develop that.
industry needs help and collaborative work with the government because
currently, although it is relatively healthy, it is not able to compete for
investment with major overseas competitors in the sector such as
Hoyle: In general, do you think there is an
opportunity because of the pound reducing in its value and the euro
strengthening and whether we could see a new car plant being established in the
it is extremely unlikely because it requires you to be a good forecaster of
foreign exchange rates. If you were
really good at that you probably would not be in the car industry. You have to be robust in your industrial
investment decisions to a variety of different exchange rate and interest rate
outcomes. The industry would not be
confident enough that the exchange rate situation we have today will last long
enough to justify an investment which is really one that will last at least 20
Q3 Mr Hoyle: When I look round, we seem to be at the top end of the market. The middle market seems to be disappearing and yet the lower end, like Nissan and people like that, seems to be holding its own. I do not know where you quite put Mini but it is a small rather than a mid range car. Where do you see the future of those two going, the small to medium and then the large? I think the large will remain. I do not know what your views but do we have a future in small and medium production long-term?
look at what the industry in the
Hoyle: Within your report, you quite rightly say we
are very strong in construction plant but in fairness JCB have opened in
we will be able to hold the percentage share because the growth rates in the
market in the areas where JCB is investing are very, very rapid and most of the
investments being made they satisfy local demand. There is a degree of portfolio balancing. I am sure that smaller excavators will be
Q5 Mr Hoyle: Do you think the construction market is replicating the car industry where we were a volume small/medium sized manufacturer? More or less the prestige market is going very well and that is where a lot of jobs are. Is the construction market replicating what we have seen in the car industry?
Professor Parry-Jones: At this stage I need to issue a health warning. I am not an expert in the construction industry. Although we took evidence, we did not take anything like as much detailed evidence in that sector as we did in other sectors simply because of their relative size. However, we did have a member of JCB on the group and I did acquire sufficient knowledge to know that international competition in the construction industry market is not as brutal and fierce as it is in cars and trucks. I do not think the pattern will be replicated in anything like the same way or at the same speed.
Hoyle: It does not look like we are going to get
another volume manufacturer in the
Q7 Mr Hoyle: It does. Is there anything we can do?
Professor Parry-Jones: Yes.
Q8 Miss Kirkbride: I wanted to ask you about R&D and what your views are on it which appear to be largely that there has to be a significant, indigenous carmaker in order to attract sufficient international foreign investment. I wondered if you could expand those views.
the relatively lower levels of R&D in the
Q9 Miss Kirkbride: It is not too late then?
Professor Parry-Jones: I do not believe it is too late at all. The window of opportunity is the electrification of the car. In the process of technology, incumbents will have less of an obvious advantage than they have over the existing technology where the incumbents are so well entrenched it is almost impossible to dislodge them. Where the technology is changing significantly, new skills are required and the incumbents do not have as strong a position. They still have a strong position but at least it is somewhat weakened compared with the traditional technology.
Q10 Miss Kirkbride: What do we need to do? You say the electric car is the chance for that.
Professor Parry-Jones: I did not say that. A small correction: the electrification of the car. That is a very different concept to an electric car.
Q11 Miss Kirkbride: What do we need to do to get that R&D here based on that electrification?
report we have developed a technology road map for the industry. This is a first. This technology road map is the consensus
view of all the major players in the
Q12 Miss Kirkbride: The indigenous car industry here is of course Jaguar Land Rover. How do you feel they fit into your R&D plans and what the government might do given that there are some negotiations going on with JLR?
was put to me by a major tier one supplier for this industry and other
industries too that JLR is of fundamental importance to the automotive supply
sector here in the
A lot of suppliers that have deeper competences that go beyond the just
in time assembly of final assemblies close to the line site are dependent very
heavily on Jaguar Land Rover business.
If Jaguar Land Rover goes under, they have no business model. It is important in its own right but it has
additional, hidden implications. If you
are a big, global investor like
are taking evidence in
Professor Parry-Jones: Naturally, I have a slightly coloured view of this having spent 38 years in the industry. If you can set that aside for the moment, the facts speak for themselves. The gross value added per capita of the auto industry compares very well with other industries. I would not argue whether it is in the top three or four but it is certainly in the top five. Within that, the R&D portion and core components are a critical contributor to the high value added position it enjoys.
Q15 Chairman: I mean the manufacturing sectors.
Professor Parry-Jones: It is very hard to separate manufacturing and R&D. What are the core processes in any manufacturing industry? Stamping metal, forming it, joining it, machining it, forging it and casting it. If you do not have those five competencies in your country, it is very hard to be an internationally effective manufacturing economy. Those five core processes of manufacturing are al underpinned by the auto industry. The auto industry has been the innovator in all five of those over the last 100 years. Most other manufacturing industries have piggy-backed on the innovation developed by the auto industry.
Q16 Mr Oaten: Your report talks about this ambitious road map. In terms of how that is going to be brought to life, it is going to require a fair amount of government investment according to the report. Are you concerned at all about the level of government involvement and the danger presumably that, if the government does get involved, the government will have to decide where to invest and the government will be picking winners?
Professor Parry-Jones: Yes, I am. That does not mean we should not be doing it. It just means we have to be very careful how we do it. One over-arching principle is the government cannot avoid picking winners. It just has to be careful how it does it. In the environment and transport area, they should only pick outcomes. They should incentivise design outcomes. A design outcome is how much carbon do you emit per passenger kilometre. How it is done the planet does not care. When it comes to business and science and education, we do not have the luxury of only worrying about outcomes. We have to worry about which areas we decide to support. At the moment I see government confusing the issue too much and we see leakage between thinking about desired technologies back into the transport and environmental agendas. That is not a good idea.
Q17 Mr Oaten: The government sets the outcomes that it is hoping to achieve. The government then has to put the money in to obtain those outcomes but it has to decide who is best suited to achieve those outcomes, which is where the difficult judgments come in picking the winners.
Professor Parry-Jones: Exactly, but that is not picking winners for delivering the outcomes. The outcomes will happen anyway. The Germans will supply the low carbon cars if we do not.
Q18 Mr Oaten: I am not following you.
Professor Parry-Jones: If the government says that in the future carbon emissions have to be 100 rather than 160 grams, at the moment we import about 80% of our cars. If we do not provide the answers, customers will buy cars with fiscal and other incentives from government that achieve 100 grams. They will just do it because they will have to. The separate question of how does the British economy participate in that transformation is where you have to pick some winners. The transport and environmental objectives can be met completely without any involvement from British industry.
Q19 Mr Oaten: What you are saying is, if we hit some outcomes as a government, in effect we may not be helping our industry. We may be helping some other country's industry who can better achieve meeting those outcomes.
Professor Parry-Jones: Absolutely. For example, if we legislate for too rapid and too punitive a reduction of carbon on premium vehicles, we will not give time for our indigenous manufacturers to respond to the international agenda. We may exacerbate their difficulties.
Q20 Mr Oaten: There is a danger that one government department could be moving ahead with one agenda which would completely counter the agenda of the other government department?
Professor Parry-Jones: Absolutely.
Q21 Chairman: Or the European Union?
European Union is far less dangerous because the European Union will be
dictating the agenda and the timing of all the major competitors. More dangerous is a local, national
initiative which beyond
Q22 Mr Oaten: Are these the kinds of issues that you would expect the Automotive Council to be involved in and engaged in? The bit I do not get is again your report seems to think that it is government that should be using that initiative. Surely a big, grown up industry with all the expertise should be getting on and doing this anyway. Why does it need government?
will. The question is where. All manufacturers except Jaguar Land Rover
and Aston Martin have headquarters that are not in the
Q23 Mr Oaten: Only government can put the pressure on them to make that ----?
It is not
pressure. The recommendations in our
report are make
Q24 Mr Oaten: You said a moment ago that there would be no incentive for these guys to get together and do it themselves because their headquarters are all around the world. I cannot really see what incentive there would be for them to come together just because the government said, "We are going to set up this council. Join it." What is in their interests as big, global players to do anything to really help this particular market, given that they are playing across a whole field of markets?
British market is important, although it is only 5% of the world market. In the UK we have the opportunity if we so
decide to use it not to make necessarily Britain a far better place to invest
than Germany but to make a competitive place to invest. By doing that we need to strengthen
R&D. R&D has been weakened over
the last two or three decades, so in order to kick start its recovery we cannot
rely on the free market, in my opinion.
We need to be more proactive and catalyse people thinking in a different
way about the
Q25 Mr Binley: I am getting a sense of déjà vu and Vic Feather and all that sort of thing. Do you remember the industrial councils?
Professor Parry-Jones: Not really, no.
Q26 Mr Binley: Have you looked at their history?
Professor Parry-Jones: No.
Mr Binley: I reckon that you ought to before making a proposal of this kind. I am immensely concerned. Of your 24 recommendations as set out in your report, 14 are either dependent upon or involve government. Are you not concerned, as a free enterprise man, a capitalist, about saying to government, "You can do it better than us. You can have a bigger hand in this than we can"? What makes you think the 90% of car industry owned by foreign companies will go along with this, other than if there is a glint of money there? Where is the evidence?
Q27 Chairman: Here is your free market opportunity.
Professor Parry-Jones: Participation in the study was primarily by foreign owned manufacturing representatives.
Binley: They were not around in
Professor Parry-Jones: When you say what makes me think these people will go along with it, the answer is they were part of the group that made the recommendations.
Q29 Mr Binley: Is it about money and paying Dane geld?
end of the day, if you want to make
Q30 Mr Binley: Is it about government investment too? They are pretty involved.
Professor Parry-Jones: If you look at the amount of government investment here, we are talking about £100 million a year. If you look at the total investment made by the auto industry globally, per year, this is smaller than a drop of drizzle in a thunderstorm. It is not about using that money to change the profitability of the returns; it is about the significance of that investment, because it can be catalytic if it can be used to tip the balance on decisions that are being weighed up in the automotive sectors.
Q31 Mr Binley: You have said a figure. That means you have done some research on the figure. Could you send us that figure and relate it to your table of recommendations?
Professor Parry-Jones: It is in the document.
Q32 Mr Wright: You set out the long term view and you recognise that the industry is in crisis now. Do you consider that the government is doing enough now to sustain it over the coming months and weeks ahead?
Professor Parry-Jones: No.
Q33 Mr Wright: What more do you think they could do?
Professor Parry-Jones: I think the speed of response of the various initiatives that have been requested by the industry has not been quick enough. Time is of the essence during this crisis because this industry probably more than most has been hit by the double whammy of collapsing consumer confidence and therefore collapsing demand and of course the shortage of credit availability for industry. The cash flow issues that rapidly plunging demand have imposed on the industry have really high fixed costs. It is very difficult to cut cash requirements in this industry. That has been exacerbated by the fact that credit lines cannot be extended. In fact in many cases they cannot even be renewed. The major help that the government could provide is finance, access to finance for car buyers. Most cars are bought on loans, as you know, and the freezing up of the credit market for loans for cars has made a major dent in demand for new cars in the UK. The scrappage programme is helpful but it is not as ambitious, as far-reaching or as well funded as the scrappage programme of some of our industrial competitors.
Q34 Chairman: It has hit a snag today, by the way. Ford, Fiat and Honda are having problems with the VAT arrangements under it.
Professor Parry-Jones: It is not as strong as it needs to be to stimulate demand. The third issue is companies that are experiencing liquidity problems which were previously very healthy, which had good business plans in normal industry conditions are experiencing difficulty renewing their loan arrangements and should receive some guaranteed help from the UK government.
Q35 Mr Wright: I heard a report last week that Nissan have created another 150 jobs on the back of the scrappage scheme on the basis of the orders coming through. Is that not evidence that it is filtering through?
comment on Nissan's internal decision making process, but it seems to me it was
a calculated gamble. The order rate from
what I have been able to see for the industry in general was not picking up at
the time they made that decision. They
obviously tried to pre-empt the demand turning up by making the investment in
taking people back on. If they are
right, we will all be happy but at the moment the only benchmarks I can use are
Q36 Mr Wright: Would you say that from all of the motor manufacturing countries we have given less support to the particular industry too late?
that we have given less support and that our responsiveness has been more
delayed. This is not just a short term
issue to keep the industry healthy and prevent acceleration of this hollowing
out we talked about earlier. It is also
an issue of perception. International
investors sitting in these foreign countries will look at what is going on and
they will say, "It looks like the
Q37 Mr Wright: You did mention the carbon schemes, the AAP's emphasis on low carbon schemes and on supporting demonstrably new programmes. Do you think that is correct or should the government provide broader support in that area?
Professor Parry-Jones: At the moment, the various initiatives on low carbon cars are, it seems to me, rather diffuse. Each department has a piece of the action and they are not necessarily well coordinated together. One of the proposals in our report is that we take this money which is deployed at the moment in the Department for Transport, the Department of Education and Science, the Department of Business and Regulatory Reform, and pull it together so we can use it more effectively. Personally - this might be a bit controversial - I think at the moment, at the going rate of £100 million a year for all of the above, that is enough money. I do not think the problem is that the government is not providing enough money. I think the problem is how effectively that money is spent and how good the results are.
Q38 Mr Wright: Do you consider that one of the problems is the support methods that the government puts in place are too complex or do you consider that measures such as the business support simplification programme will address that complexity?
Professor Parry-Jones: I think it is a step in the right direction. The complexity is an issue and further simplification is required. There is a bigger problem than that and that is the basic problem of government departments working seamlessly together for an integrated, holistic strategy.
Q39 Mr Binley: What happens if this does not happen?
Professor Parry-Jones: If the recommendations do not get adopted?
Q40 Mr Binley: Yes.
see any alternative to the continued hollowing out of the industry in the
Binley: Are we not going to see one of the Vauxhall
plants going? Are we not going to see
I have no
idea. I do not have the inside story on
Q42 Mr Binley: I am concerned about your faith in government bodies collaborating and what I see as a rather quaint and attractive view of how government acts in the best interests of its people. I do not quite see that. I see a lot of in-fighting and departmental struggles. I see a lot of silos and I see that in local government, let alone in national government. Is it really practical to get the cross government operation you want? For example, you want this to be led by BERR but you want the Treasury involved and you want the Department for Transport involved. BERR is a junior operation certainly next to the Treasury. Do you really see that happening in the way you want?
Professor Parry-Jones: I have worked in a number of foreign countries where the auto industry is quite strong and they seem to be able to pull it off.
Q43 Mr Binley: Tell me where.
Q44 Mr Binley: The German character. You might be right. I was talking about this country because that is where you want this to happen.
true. I do not pretend to have all the
answers about how you overcome some of the practical difficulties of making
this operational. If we benchmark
international competitors, we may have to have a unique method of doing it in
Q45 Mr Binley: Are they not winning the game because they are bigger and have had more money for the last 25 years?
Professor Parry-Jones: The international competitors?
Chairman: They make very good cars as well.
Q46 Mr Binley: Because they are bigger and have more money.
Professor Parry-Jones: There are some things that we cannot easily reverse or change. A very significant factor in their success has been the unwavering and very strong support the host country has given to those industries. In discussions I have had with politicians, I think they underestimate the influence they have over international investment decisions.
Q47 Mr Binley: My final question is about what the report states as a criticism of the present complex, arbitrary and often punitive fiscal regime for vehicle ownership and use. Do you not see that regime worsening from an industry perspective rather than getting better?
Professor Parry-Jones: I admit to not being of the extremely sceptical persuasion that there is no point in making recommendations about this stuff because they will never be adopted anyway. We have gathered the evidence, analysed it, used our experience and our knowledge to produce recommendations that are our best shot at what we think should happen. I have not encouraged the group to dilute their recommendations on the basis of, "Oh, that will never happen. Nobody will ever do that." I have rather reached out for what should we do if we want this industry to be competitive.
Q48 Mr Binley: Professor, you made that statement in your report. Let me rephrase my question. Instead of looking at the rather negative way I put my question, what would you like to see in terms of that statement, "the present complex, arbitrary and often punitive fiscal regime for vehicle ownership and use"?
Professor Parry-Jones: I believe that in order to make progress on an equitable basis towards a low carbon personal transportation system - and as we said in the report personal transport accounts for 90% of all passenger kilometres, so it is going to be around for a heck of a long time - what we need to do is, instead of having bands that are changed every few years, different bands in London as was one of the proposals, municipal authorities having the power to impose congestion charging based on anything they want, we should have a harmonised regime, first of all, so that everybody is using the same rules for fiscal incentives and disincentives. Within that framework, every gram of carbon emitted per kilometre should be treated to the same penalty, irrespective of the technology used to release it, irrespective of the fuel used, irrespective of the purpose the journey was put to and irrespective of the type of vehicle used to get there. Every gram of carbon has exactly the same impact on the planet.
Mr Binley: Are you frightened about an over-mighty government?
Q49 Chairman: I think what you are frightened of is an arbitrary government, if I am right.
Professor Parry-Jones: There is an opportunity to work constructively with government. We need to be very careful. You are quite right about that. There are plenty of failure modes that could be incurred along the journey, either government getting too powerful or none of the recommendations being taken seriously and put into action. I understand all that but I think we have nevertheless a duty to put forward what we think are the right recommendations.
Chairman: The technology neutrality of what you are saying is really important. The former Mayor of London had a preference for hybrid cars but cars which emitted less carbon paid a higher rate and there was a certain inconsistency. I think that is the point. I think sensible rather than over-mighty government.
Q50 Lembit Öpik: I am tempted to raise the segway as a personal transporter, but the one question I had was do you think there is any way that the government can drive the survival of the supply chain, which obviously employs hundreds of thousands of people, or is that too big a challenge? Is it unfeasible to do that?
Professor Parry-Jones: No. As you phrased it with "drive", I think that is too tall an order. Can they help? Can they facilitate? Can they mitigate? Can they tip the balance with all the other efforts that are going on? I think their role is very decisive and very influential. We should be encouraging the government to do everything they can within reason to make sure the supply base does not continue to be hollowed out.
Q51 Lembit Öpik: If you could give a 30 second piece of guidance to government on how to do that, what would that guidance be?
Professor Parry-Jones: Implement the recommendations of our report.
I was working as a special adviser at the DTI in the 1980s, we had a policy of
tracking of every international, mobile investment to the
Professor Parry-Jones: Maybe not specific examples. The evidence that we have collected suggests that this is a more pervasive problem. It is more a problem of perception, by repetitive actions or inactions. More recently I think the issue has been one of inaction rather than lack of response to specific opportunities.
Chairman: Professor, this has been an extremely valuable session. I am enormously grateful to you. Your journey down here today has been difficult to organise but I can honestly say it has been pure gold as far as we are concerned. It has set a fantastic and really helpful context and helped us understand your report. When I read it again properly, I will now know what you meant even more clearly than the excellent wording in the report when I read it in the first place. This has been absolutely invaluable and we are very grateful to you.