UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 550-iii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

BUSINESS & ENTERPRISE COMMITTEE

 

AUTOMOTIVE ASSISTANCE PROGRAMME

 

 

Thursday 21 May 2009

Chorley Town Hall, Market Street, Chorley, Lancashire

 

MR CHRIS GATELEY

MRS ANDREA PAVER, MR DENIS CULLOTY and MR STEVE BARFOOT

MR MARK HUGHES

Evidence heard in Public Questions 173 - 306

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Oral Evidence

Taken before the Business & Enterprise Committee

on Thursday 21 May 2009

Members present

Peter Luff, in the Chair

Mr Brian Binley

Mr Lindsay Hoyle

Mr Anthony Wright

________________

 

Witness: Mr Chris Gateley, Managing Director, Multipart, gave evidence.

Q173 Chairman: Can I begin with an apology that we are running rather late, it took us a little longer than we expected to get round Leyland this morning to see the trucks. I apologise for keeping you waiting. Can I ask you to begin with a general question. Could you just say who you are for the record. We have got a written brief about Multipart and we know your business, but just paint a picture for us about the business and then we will move to more structured questioning.

Mr Gateley: My name is Chris Gateley, the Managing Director of Multipart Solutions Limited. Multipart has been in existence probably since the early 1900s in one form or another. It came from the old Leyland organisation many years back. It was the after-market part of Leyland, DAF and LDV when there was the original organisation, but in 1993 when DAF went under it gave the management of the company at the time the opportunity to buy into and break that group up, so you ended up with DAF, Leyland, LDV and Multipart. Multipart started as a statutory entity in 1993 and since that time we have moved away from Leyland and DAF as they were bought by PACCAR and their philosophy is to do with the after-market in-house rather than outsource it. We have had strategies in the last ten years thinking we cannot survive on LDV alone, so how do we take the core competency of our business and move it elsewhere. We do not manufacture anything. We do not manufacture vehicles and we do not manufacture cars, but we effectively provide the after-market solution to all of our auto and defence clients by sourcing parts, deciding how many parts we should buy and hold in our inventory, so we take the inventory as our own risk, we buy them, we store them, we wait for the demand from the dealership network or customers and then we send those parts out as and when they are demanded. It is a unique business. It is a bit like Unipart for Jaguar. It is never going to win Ford, General Motors or PACCAR who decide "our philosophy is in-house" and the only bit they would outsource is what we call trucks and sheds, which is borrowing the shed and the truck and getting the parts out to the customers. All the intellectual bit around what parts, how many parts, how we should do it, where we should buy, that is done by Multipart. We are the parts division of many of our clients.

Q174 Chairman: Just to be clear, in the defence sector it is the transport interest that you service as well?

Mr Gateley: No, it is exactly the same. In the defence sector we have contracts with the Ministry of Defence for heavy-armoured spares provision for the Challenger tank, the Rapier missile - not the missile but the launcher - and all of the MoD's construction fleet throughout the world. We do exactly the same for the auto. We will go and think, "What do they need? What is the probability of something breaking down? Why has it broken down? What is the part to fix it?" because by six o'clock every night in the auto sector we have to have a part there pre-nine tomorrow morning, or in the defence sector it is 24/7 365 days a year.

Q175 Chairman: In the automotive sector your work is concentrated on commercial vehicles?

Mr Gateley: We have the TVR sports car but the rest are commercial vehicles around LDV, Isuzu trucks, Dennis Eagle bin wagons, and we have just won the Optare bus and coach contract and also the Modec electric van.

Q176 Mr Hoyle: First, can I say thank you for remaining in Chorley. You have got your new facility in Chorley.

Mr Gateley: We are very proud of it.

Q177 Mr Hoyle: It proves that you are investing in the future and the region. Thank you for that. What is the long-term future for the UK automotive industry as you see it? If you could just give us a quick overview of how you see the industry.

Mr Gateley: For the poor manufacturers or non-viable it is bleak, and it should be. I am a very strong believer in supply and demand and if a person cannot quite make it they should go. It is very difficult short-term for the stronger viable ones, but longer term I think it is a good future for the likes of PACCAR, et cetera. It is very disappointing for the small very innovative companies, like Modec, where they are investing in something green and new and probably do it very much on their own as opposed to getting any support. They have been hit with difficult times and are probably 20 years ahead of themselves in terms of the marketplace. For those who are struggling at the minute, they need to go. That will be good for those who actually have a longer term future because they will take that volume into their own account. For the small innovative organisations, and suppliers as well, the battery suppliers, as an economy that is where we should be investing.

Q178 Mr Hoyle: So has the Government got it right to actually support their vision for a low carbon vehicle for the future? Is that right for now?

Mr Gateley: I think it is right for now but you have got a very difficult future because as a culture and a country we probably want to buy on price and the best part, not quite the European philosophy and, as I know, if I take the battery side, when you look at the price of the battery side of commercial vehicles, Optare coaches, the costs are so prohibitive I cannot genuinely see any commercial reason why you would want to go and buy into a vehicle that does all the right green things but commercially is not viable at the moment. That is why I say you are probably 10 or 15 years ahead of yourself or pointing investment in the wrong area.

Q179 Mr Hoyle: Obviously there was great concern over LDV Vans, you hold the parts for LDV vans, and there is Team Leyland, which is the export van of LDV Vans. Do you think there is good news to come?

Mr Gateley: For LDV?

Q180 Mr Hoyle: Yes.

Mr Gateley: I put them in my first category of the company that deserves to go.

Q181 Mr Hoyle: Is recession good for you?

Mr Gateley: Yes, it is.

Q182 Mr Hoyle: That is what I thought. So you are one of the people who smile, in a sense, in a recession?

Mr Gateley: Yes and no. The reason we do not smile is because the commercial vehicle sales in our organisation are down by about 35% right now and that hurts, it really does hurt. The reason we smile is because most of the organisations that are in the outsourcing mode or frame of mind do make decisions. 24 months ago an organisation that was looking at half a million pound savings or a cash injection would have thought, "That is not a significant enough change for us to make a strategic change in how we do things". The best example is Optare. It has taken us two years to land Optare. The first 18 months was just waffle and, "Yes, yes, it sounds good but..." and when the recession has come through, when the cash injection has come, the real cash, because it is not easy getting money at the minute, half a million pound savings a year, they have much critical support to make a decision to outsource. This year we have won three major contracts. One is Optare, one is the HASP Ministry of Defence contract, and another contract that we have won is the Anglian Water utilities. Is recession good for us? Yes, it is, but only because we do not thankfully have major plants, major tooling to worry about, we are quite nimble on our feet and we think where do we take this core competency and shift it into defence, and we can tick the box and say we have done that, and now we are looking to the utilities sector to do that as well. Fundamentally, in two years' time I suspect our business will be not the 75 million it is today but 100 million and only 25% rather than 50% will be the automotive sector.

Q183 Mr Hoyle: So you are slowly moving away from that.

Mr Gateley: Or attacking it in a different way. The problem we have with the automotive sector is our company relies on our clients and when LDV and Isuzu Trucks and Dennis Eagle start to suffer our hands are tied as to what we can do because you can only sell through their networks.

Q184 Mr Hoyle: The flip side of that is it is also about spreading the risk as well.

Mr Gateley: Correct.

Q185 Mr Hoyle: The old cliché, all the eggs in one basket, you can protect yourself better if you spread it. When we talk to people, instead of changing those two or three trucks they were going to buy they are hanging on and are now buying parts to refurbish.

Mr Gateley: No.

Q186 Mr Hoyle: You do not see that either?

Mr Gateley: No. You are absolutely right, that is what we would have thought. In July last year we saw sales dropping quite significantly and the first thought was, "It will be all right because all the dealers are doing de-stocking to take working capital back into the account" and that happened. Round about September we thought, "They have got to start stocking now, surely to goodness", and they did not. Our sales are now down. If you take LDV, our plant sales were 125,000 a day and the last five days were 60,000 a day. One of the most reliable VOSA statistics are the commercial vehicle MOTs where last month it was down 30% on the same time last year. Commercial vehicle drivers are deciding, "I'll park my van up as I've nothing to do", or they are saying, "I won't actually take it for an MOT yet, I'll just hang on in there because I haven't got the cash for it". I do not think it follows that we are benefiting as a consequence of people keeping their vehicles on.

Q187 Mr Binley: You said that you thought there might have been less sales in July of last year because of de-stocking.

Mr Gateley: Yes.

Q188 Mr Binley: What was it for if it was not for de-stocking?

Mr Gateley: It was.

Q189 Mr Binley: You proved that, did you?

Mr Gateley: Yes, absolutely. In Q3, July, August and September last year, there was an absolute trend in the industry for the dealers to de-stock, get their stock levels down, and the dealerships to generate cash. We thought once they had done, because once you have no stock in the showroom ---

Q190 Mr Binley: Absolutely.

Mr Gateley: But it did not happen, it carried on. As a consequence, what happened is the foot traffic into the dealers for bringing their vans in, commercial vehicles, dropped away significantly. As I said, we had planned - budgeted - for 125,000 a day and up until about five weeks ago we were hitting 75,000 a day, which is pretty dire for us, and in the last two weeks, and this is mainly LDV I am talking about, the LDV commercial van, that has dropped to 60,000 a day and we cannot get our heads round what has happened. Is that a complete loss of confidence in LDV or what? That is a significant drop. (a) they have de-stocked but (b), more worryingly, white van man are not repairing their vans or they are thinking, "Why go to dealers, too expensive, genuine parts, we will go to other factors or other avenues to get cheaper parts". They are certainly not coming to the main dealers.

Q191 Mr Hoyle: Presumably they get down to the scrap yards and try to find scrap parts.

Mr Gateley: If you have a 17 year old LDV Convoy or Pilot that is probably what you would do.

Q192 Mr Hoyle: Rather than buy a new part. You just touched on TVR which is obviously manufactured within the Northwest, Blackpool, and disappeared. How have you come through that and you are still the supplier?

Mr Gateley: They gave us the contract once they had disappeared. That is important because TVR has always done it the TVR way, but they realised they had to do it a more professional way so they found an organisation like us to do it. The nice thing about the TVR driver is I think he is almost recession-proof. You are talking £3,500 or £4,000 sales a day. That person brings his car out this time of the year, dusts it down, cleans it, and will still spend £10,000 or £12,000 on an engine. He is all right. That will continue. TVR is small beer for us. It is nice to keep it ticking over. It is the commercial vehicles side that is important. Isuzu Truck sale parts are down by about 18% for us. That is a real player in the marketplace and thankfully they have not gone down as far as the LDV side probably because Isuzu Truck drivers/owners know there is a real future and, therefore, they keep their warranties and get paid warranty work. One of the interesting things about the drop in sales of LDVs is a significant amount of that, but I cannot tell you how much, will be because of warranty. Whereas LDV cannot pay their warranties, dealers are pushing warranty work away and saying, "I am sorry, I know it's an LDV van but you didn't buy it from me, therefore I will not repair your engine or your bodywork, go away". Quite a lot of our sales shortfall, 125,000 to 60,000, is because the warranty work is not now pushing out because limited dealers are doing warranty work.

Q193 Mr Hoyle: Obviously Dennis Eagle is a long-term contract that you have had, a good contract, good business, presumably that covers the dustbin wagons and fire engines.

Mr Gateley: Yes.

Q194 Mr Hoyle: Technically because they are municipal, county vehicles or fleet vehicles they are maintained to the highest standard and that is why it is good business. Is that fair to say?

Mr Gateley: That is absolutely fair to say. The only problems we have is in an after-market part business like us 2009-10 is tough and our problem will be in 2014-15 because all the vehicles that are not being sold today will not be there to go wrong in 2014-15. Our problem will come in the future. The issue we have with Dennis Eagle is Dennis Eagle are doing very, very well for all the reasons I have mentioned but they are starting to see a real slowdown in their order book for new vehicles. If you see Dennis Eagle, Mike Molesworth will tell you that it is a very good order book but now they are seeing a real issue going forward. That will be my problem in 2011/12/13.

Q195 Chairman: One of the reasons we were anxious to see you was you have an opportunity to comment and observe on the wider supply chain and how it is responding to the current crisis, not you as a company but as an intermediary between the manufacturers and suppliers. What is your view of the state of the automotive supply chain in the UK? You can speak mainly for the commercial vehicle sector but you have a wider perspective too, I expect.

Mr Gateley: Yes. I am actually quite excited about it, to be perfectly frank, because up until the recession, certainly a year and a half ago, I would go so far as to say the bubble of Chinese parts in the past was falling away: quality, distance, it arrives, it is not quite right, send it back and for a few bob is it worth shopping in China? I believe that there is a great opportunity and certainly with the exchange rate falling as it is - it is a shame the economy is falling as well - it is an opportunity for manufacturers of parts to come back in some way. The demand supply chain in the UK is significantly harsher than it is, say, in mainland Europe. A real example would be Ros Roca bought Dennis Eagle around about two years ago and Ros Roca could not understand why Dennis Eagle chose to outsource its after-market to a company like Multipart or Unipart or whatever. They said because the service level requirements for parts next day and the quality of the parts has got to be absolutely 100% to ensure they do not go somewhere else. That is not an issue in Spain, once a week into the vans and people do not seem to worry about it. Two years on, what is interesting and happening for us, and we are quite excited by this as a company, is that Ros Roca are looking at the model in the UK thinking, "My goodness, if we do want to have a world class service as in the UK then maybe we ought to think about doing the after-market better". For an after-market intermediary like me I am quite excited by that. I also strongly believe - forgetting the exchange rates because they are quite transitory - the issue for the BRIC countries is that the quality and distance will run against them in the short to medium-term once organisations who need those parts tonight for tomorrow morning's delivery think Chinese parts are not quite as reliable and by the time they arrive here you cannot do much about it, you have probably paid for them, and it is a bit of an issue.

Q196 Mr Binley: I just want to get an understanding of your own supply chain which I imagine is quite sizeable and quite diverse. Can you give us an idea of how many companies supply you and how many people they employ?

Mr Gateley: We employ 900 vendors, suppliers, in the United Kingdom.

Q197 Mr Binley: 900 within your supply chain?

Mr Gateley: Yes. The likes of Isuzu we buy from Isuzu or from Japan, but LDV, TVR, Dennis Eagle, Ministry of Defence, all of that work is with 900 suppliers from JCB right through to Tom in the shed in Blackpool.

Mr Binley: That gives me a view of your pyramid thinking.

Q198 Chairman: A lot of them in the UK?

Mr Gateley: Yes, absolutely. The vast majority are in the UK.

Q199 Chairman: Have you seen the new Automotive Innovation and Growth Team report?

Mr Gateley: No, I have not.

Q200 Chairman: They said: "The hollowing out and loss of high value jobs in the automotive supply chain has not been only to low cost countries such as China or Eastern European, many have been lost to higher cost economies such as Germany and France, therefore providing the opportunities described earlier... There is potential to stop this process and rebuild in the UK" and they propose a UK supply chain council of people involved in it to work out a policy framework needed to sustain the UK supply chain. Do you think we have lost jobs to mainland Europe and higher cost economies as well?

Mr Gateley: In my field I find it very frustrating. We do a lot of benchmarking exercises where we are up against Renault, Peugeot and the rest, BMW, et cetera, and there is something quite unique every time. You go there and their statistics are just as good as ours in terms of our first full measure of availability but most of those have got one source of supplier, which is Europe, where BMW build all the bits, put them in a massive warehouse usually in Belgium somewhere and then ship them across, whereas we are sourcing from 900 UK suppliers and we do the job and that is it. Most organisations moving here, and Isuzu are doing the same, are building a massive distribution centre in Antwerp. That will be an issue for my company because it is not six months' lead time now but literally overnight. There seems to be a propensity for organisations to think they have to be in Europe, probably because of the much wider market, and we are right-hand drive, therefore a very small market, and they serve from there substandard service, whereas Hyundai-KIA have now made investment in the Midlands in a big distribution centre, which is good. Organisations like ours vying for the lower level quality vehicles like the LDVs and the TVRs will always have a good marketplace in the UK. Take LDV, the danger is (a) mainland suppliers will fall away and (b) will be obsessed by the LDV situation and that means there will be consequences for us.

Q201 Mr Binley: I want to pick up on that. You are an SME yourself.

Mr Gateley: Yes.

Q202 Mr Binley: Many of your suppliers will be in that bracket too.

Mr Gateley: Yes.

Q203 Mr Binley: Not all of them, but many of them. My concern is that when we are looking at aid, and we are coming on to it later, and it is the structure of supply chains that I am concerned about, the money is going to the big UK plcs, as it were, but the supply chains are very vulnerable.

Mr Gateley: Yes.

Q204 Mr Binley: Is that your feeling?

Mr Gateley: I think so. I spoke to somebody recently who said more investment and time and effort was put into manufacturing than into supply chain support in this country.

Q205 Chairman: We took evidence from some big car companies yesterday in Birmingham and they were telling us quite convincingly about the work they are doing to sustain and nurture their supply chain because they recognise the importance of it. Do you think enough is being done to sustain and nurture the supply chain by the business itself? We will come to Government policy in a second.

Mr Gateley: Yes, I do. Organisations like those and us understand even though it is tough to get cash at the minute the first people we pay are our supplies because we have to keep all of those organisations on their toes at good prices and equally have a sustainable supply. That is absolutely critical.

Q206 Chairman: That aspect of the supply chain is working reasonably well in the circumstances. What are the strengths and weaknesses of the supply chain? What are the issues that need to be addressed in the supply chain to make sure it is sustained?

Mr Gateley: I would have to give that some thought, to be honest.

Chairman: Nothing immediately comes to mind. That is quite interesting in itself. It is not, "The problem is X"?

Q207 Mr Binley: Could you write to us on that? This is a serious area and if you could write we would be very grateful.

Mr Gateley: Yes.

Q208 Chairman: The fact you could not immediately identify an overarching problem inherent in the chain itself is interesting. Let us move to the policy framework.

Mr Gateley: The reason it is difficult is because it is a very fragmented supply chain. I have only got five automotive CD clients yet I have got 900 vendors doing the jobs and those vendors have survived somehow because of the lack of scale of those clients, perversely enough. Whilst they are not Ford, and Ford are screwing the suppliers into a smaller number, the supply base I work with is far more niche, have got the only access to tooling to provide the services I need, to provide parts, et cetera, so we have to treat them well. Off the top of my head, I cannot think what a genuine solution would be from Government policy that would help those 900 suppliers.

Q209 Mr Wright: On that particular point, obviously the Government recognises there is a huge problem with the worldwide recession but specifically with the automotive industry they have brought together packages which have been welcomed, although guardedly. What do you consider the Government should actually do to change its policy?

Mr Gateley: I only really hear through the press where monies and guarantees are coming from and when I was thinking about this yesterday I feel you are not doing enough to help those innovative organisations which fall under your wire, maybe less than £25 million, and that is where the innovation starts.

Q210 Mr Wright: You think they should be more flexible?

Mr Gateley: Yes, I do.

Q211 Mr Wright: We heard that yesterday from the industry.

Mr Gateley: Or even more targeted rather than flexible.

Q212 Mr Wright: We heard from the industry yesterday that the message coming from Government is they are going to be more flexible on the £25 million and the £5 million in terms of the project funds.

Mr Gateley: Yes. Those are big amounts. Innovation comes from small companies. I feel you are putting massive amounts into organisations that can afford it and there is a contradiction. If you think of a major manufacturer, what interest has he got to go into green vehicles when in this country we are not that bothered, to be frank? If I want to buy a BMW or a Mercedes or a Ford I have a choice here but it is not quite like that in France or anywhere else. I want a cheap car and I just want it to run. You are 20 years too early in some respects. If you are going to do something real you have got to push it hard by looking at those small organisations that will be innovative and drive change and then I think the major manufacturers will follow after.

Q213 Mr Wright: Really what you are saying is be more flexible on the £25 million and also the £5 million project fund?

Mr Gateley: Flexible is one word, but I think you need to be more targeted. It is easy to sound flexible, but you should be out there looking for the organisations that need the help and probably do not shout for it.

Q214 Mr Binley: I just want to go back to supply chains and understand a little about how you relate to your suppliers with regard to quality, which is a vital issue for you.

Mr Gateley: Yes.

Q215 Mr Binley: Because of cash pressures, have you seen that quality diminish?

Mr Gateley: No. There has been no evidence in our organisation of quality diminishing. Quality is clearly important for us and our clients. We would not change suppliers without the clients saying, "That part is now genuine OE and serves the test of time". We have not had to resource much. The issue we have got whilst things are difficult is our suppliers coming back with significant price increases on parts. The quality is not an issue but the volumes are dropping and the way they can recover is by saying, "The price has gone up by X per cent".

Q216 Mr Binley: Can you give me an idea of how you monitor and maintain your supply chain quality?

Mr Gateley: In the auto commercial vehicle sector we effectively have QA underwritings by the supplier in our contracts of procurement. We have got our own internal audit team, QA team, to audit that. When parts come in they are visually checked on site. We have got an inspection part of the business where if there are any issues we quarantine those and follow that up with suppliers. It is quite a blue chip organisation making sure we have got processes in place to capture parts before they go into the bins to be sold that might not meet the quality criteria. We have got a contract supplier and we have probably got a contract for 5/10 years, so at the start the processes are quite cumbersome for our suppliers, they tell us that, but we want contracts with organisations that will be there for 5/10 years and we check QA at the start and intermittently through the supply.

Q217 Mr Binley: When on site do you do regular spot-checks in terms of quality?

Mr Gateley: No, it is mainly when parts come in. We do not actually have the resources to do that.

Q218 Mr Binley: That is helpful. Can I come on to Government policy now because you made some statements on that. I want to include the supply chains too because companies like your own without that supply chain, if that structure was not in place, would be in serious trouble. Can you be absolutely specific about Government schemes and how you and the word you have got from your supply chain find them? Can you tell me if there is a concern there how we might improve it? Finally, can you tell us any comment you might have about the systems being operated by the banks and where we can improve there? Those are big questions, I recognise, but we need to get to the detail of this.

Mr Gateley: I think as a body you are seen to be slow - even when money has been agreed it does not seem to turn up for an awful long time - bureaucratic and difficult. There are all the right intentions but when it comes to getting money out of your wallet it seems to be a laborious process to physically do that. That is real experience. Not from me personally but from one of my major clients. Having read the paper over the last few days on the AAP I do not think it is that complicated and I have heard the comment that it seems to be. My issue is it is so well finely tuned that anybody who qualifies for it probably does not deserve to qualify, quite frankly. The organisations that need it will be excluded from the £5 million and £25 million for the, what was the fancy word that you used?

Q219 Chairman: We are scrutinising Government policy, we are not the Government. I must disassociate myself from that. Those are not our words.

Mr Gateley: That sounds a very defensive comment. You have to work hard to get it and when you think you have got it, it takes a long time to get it. I am not so sure the right horses get to the final end of the race. That would be my take on what I have read so far.

Chairman: That is very consistent with what we heard yesterday in Birmingham.

Q220 Mr Binley: What about the whole bureaucracy thing? Some people tell me it is there and other people tell me they did not find it too difficult.

Mr Gateley: I will just give you one example and this is third-hand. LDV's £5 million is still not there, is it, and that was 6 May. For a company that is supposed to be going down week, after week ---

Mr Binley: A massive problem.

Q221 Chairman: The money still has not been paid?

Mr Gateley: That is my reliable understanding.

Q222 Mr Binley: What would you do to improve it? The answers would seem to be obvious but sometimes the obvious does not appear.

Mr Gateley: Take a bit more risk.

Q223 Mr Binley: With Government!

Mr Gateley: I know. It is the target and risk, and that is what we do in business, we make a decision, we run by it and if we fail, fine.

Q224 Mr Binley: I agree with that.

Mr Gateley: Either you do not interfere at all, just get out of it and leave it to supply and demand or, if you are going to interfere, interfere in the right areas. That is my viewpoint.

Q225 Chairman: Brian was not in Birmingham with us yesterday and one of the major themes was that the banks were not prepared to lend to the automotive sector full stop, they are unhappy with the sector. Because most of the Government schemes are guarantees of private bank loans the scheme just could not work because you could not guarantee the loan would exist in the first place.

Mr Gateley: The saddest thing is last year I won the TVR contract, small beer, whatever, and this year we won the HASP contract, which has a fee structure of about £1.5 million a year, £7 million sales, and won the Optare contract at £2.8 million. We wrote to our bank and said, "Can we now have asset-backed funding?" and the email I got back was, "Congratulations, but unfortunately because your contract is with the MoD we cannot fund this contract, and because the Optare contract has got this and that we cannot fund that either". You can imagine the response that went back to my bankers.

Q226 Chairman: You think there is good evidence that the automotive sector is being shunned by the banks?

Mr Gateley: I think the banks are shunning everybody, I do not think it is just the automotive sector. I actually consider Multipart has got a very good, strong, viable future and it is probably stronger now than it has been for the last 5/10 years, yet my funding comes from two sources. One is the lovely property that I have got which was valued in March last year at £19 million and under the terms of my agreement has to be revalued every six months and is now down to £12.9 million. That drop of £6 million in nine months reduced my facility by half, £3 million. I went to them and asked, "On the back of the Optare contract can you fund my invoicing discounts and on the HASP, Ministry of Defence", and you cannot get a bigger blue chip client than that, "could I have the funding level on that as well?" and the answer was no in both cases. Where I am now, week after week I am in breach of my covenants. I said about 20 minutes ago the most important thing for me is to pay my suppliers and there are times when I choose from A to N will be paid this week and from N to Z the week after. There are lots of organisations in the auto sector, dealers especially, that have gone under who have never had an overdraft, always been very careful with their cash, who now have had the banks close the door on overdrafts for survival. That is why we get passionate as an industry that some organisations that do not deserve to survive might get some handouts.

Q227 Mr Hoyle: Just a final question. You were talking about LDV Vans and green technology. LDV Vans have looked into the electric van. Was that a mistake? Was the timing wrong?

Mr Gateley: Or an act of desperation.

Q228 Mr Hoyle: Sainsbury's are running round with some of these electric vans I understand.

Mr Gateley: Yes.

Q229 Mr Hoyle: What is your view on that?

Mr Gateley: The best example I would give is Modec. There is an organisation that has not managed to sell many vans, has got a wonderful conceptual design and has been at this for five years and has Tesco running its vans, but the technology does not quite work, et cetera. They and their banks have invested heavily in that product. Smith Electric is another organisation selling vans, take a transit van and strap a bloody big battery to it. Again, it is difficult. Fundamentally, the economy is not ready to have a £25,000 battery strapped to its back and pay that off. Either you as an organisation grant rather than loan or guarantee monies to organisations that make this technology work, the batteries smaller to help the Optares and what they have to do, they are trying to do the same thing, and Modec, et cetera. If you ask me about LDV, I would look carefully if I were you.

Q230 Mr Binley: Do you get the impression that the banks find this all so bureaucratic they do not want to bother with it?

Mr Gateley: I am surprised that banks are not bothering given in most cases you are offering 75% guarantees. I come back to the targeting side again. It really annoys me that the Government has bought into most of the banks and yet do not manage the beggars. Either do it or get out of it. As a small business guy, £75 million, and most organisations I know of are the same, getting hold of cash is very, very difficult even when you can evidence success. The biggest fear I have is if my property drops from £13 million to £10 million in September when the value comes up again I will be out of business, and yet I will have won two or three clients this year.

Q231 Mr Binley: You will write to us about the supply chains?

Mr Gateley: I will write to you personally saying, "Where is my money?"

Chairman: We have got that on the record, it is all written down. Mr Gateley, thank you very much indeed. I am sorry we kept you waiting but it has been really useful and I hope not too intimidating. Thank you very much.


Witnesses: Mrs Andrea Paver, Managing Director, and Mr Denis Culloty, Chief Engineer, Leyland Trucks Limited; and Mr Steve Barfoot, UK Country Manager, PACCAR Financial Limited, gave evidence.

Q232 Chairman: Welcome. First, a big thank you for taking us round your factory earlier this morning. We really enjoyed the tour and it was very valuable and educative. Thank you for that, and for the opportunity to have an informal discussion with you before you give formal evidence now. Although we know who you are, as always for the record I would like you to introduce yourselves.

Mr Culloty: I am Denis Culloty. I am Chief Engineer at Leyland Trucks.

Mrs Paver: Andrea Paver, Managing Director of Leyland Trucks.

Mr Barfoot: I am Steve Barfoot. I am Country Manager for PACCAR Financial. PACCAR Financial is the captive finance company for DAF Trucks.

Q233 Mr Hoyle: Thank you for this morning. Have you got a long-term future and is the future good for your company?

Mrs Paver: We absolutely have a long-term future. We have done everything possible to right-size our business for the economy, but part of that right-sizing is preparing for the u-turn and being ready for it and to take advantage of it.

Q234 Mr Hoyle: You are the leaders, you are number one in the UK and in Europe as well.

Mr Barfoot: Yes.

Mr Hoyle: That is good, you can see the commercial sector growing but what about the rest of the automotive industry? Do you think they are as well-placed as you are for the future?

Chairman: Not just the commercial vehicles.

Q235 Mr Hoyle: No, across.

Mrs Paver: I would not want to comment on the automotive side. There is a significant difference between the automotive and commercial vehicle and my and my team's focus is the commercial vehicle.

Q236 Mr Hoyle: Obviously you invest heavily in R&D and in particular low carbon vehicles. Do you think that is the right way to go? Obviously everybody would say so, but is it the way that you are leading the rest of the business and everybody is following you? Where do you see that going? How well-placed will you be because of the investment, and quite rightly, in some of the leading designs that you win awards for?

Mr Culloty: The investment in low carbon vehicles is a critical part of our portfolio going forward, a big investment in Euro 5, then enhanced vehicles in Euro 6, which is a critical cornerstone. Some of the good work on hybrids and electric vehicles is important, but I would make the point that there is more to our strategy than just low carbon vehicles. Maybe the Government support perspective is a little bit singular in that approach now. We would encourage a broad perspective to include advanced safety concepts, road-friendly concepts and more beyond just low carbon vehicle initiatives alone.

Q237 Chairman: I would like a bit more of a list on the other issues. I understand advanced safety. Road-friendly, presumably that is the impact on the road structures of your particular vehicles. Are there any other issues that you think would encourage high value-added manufacturers to address them more systematically?

Mr Culloty: I think the safety discussion is worth extending a little bit further if you get into total vehicle safety systems because right now vehicles have a number of add-on features that can be effectively integrated and can probably have some significant impact on road casualties which are still a significant issue. Beyond that, there are some material strategies which are worthy of further exploration. We still have a vibrant aerospace industry in the UK and it makes a good deal of sense to leverage on that to take that forward.

Q238 Chairman: Composite technologies?

Mr Culloty: Absolutely, yes, to take it into automotive composite components.

Q239 Mr Hoyle: As we know, we lead the world in aerospace technology in this region, Lancashire is by far the leader in composite materials.

Mr Culloty: Yes.

Q240 Mr Hoyle: I have been trying to say to BAe Systems that here we are, we rely totally on procurement to ensure these contracts go ahead and what worries me is that transfer of technology does not take place in the way that it should do. I never see an audit trail about BAe Systems developing something fantastic where we can say, "That's what we did to defend and attack people, but here is the benefit for the civil application". If you take the space shuttle, the one thing you can say is, "We go into space, but this is the spin-off. Look what we have created for society on the ground, not on the moon". Do you think there is more we can do there or do they do it so quietly we never hear about it?

Mr Culloty: I am sure there is more that can be done. The application is obviously significantly different and we do try and link through the Northwest Development Agency into people like the National Composite Centre. There are thoughts around making that happen but some Government incentive or support to connect practical application of high-tech composites to the automotive industry would be a good thing to do.

Q241 Mr Hoyle: With R&D the company took a critical decision many years ago that you knew that was where you needed to be, you wanted your in-house R&D, you developed it very well, but do you think there is a skills shortage within your R&D and there is a danger because of recession that the right investment in R&D is not taking place?

Mr Culloty: I think there is a real risk of a skills shortage in R&D. Today with budgets cut right back in R&D there probably is not today, but as we look to expand next year and the year after to prepare for Euro 6 the people will not be available to come through and the graduate programmes are not necessarily bringing people through. Maybe the apprentice schemes are, but ---

Q242 Chairman: We want to talk about skills more generally later.

Mr Culloty: There is a real risk of skills shortage to support the growth in R&D over the next two to three years.

Q243 Mr Hoyle: If there was one thing that you could say to us that would make a real difference to the commercial vehicle sector, what would it be?

Mr Culloty: Crikey, only one?

Q244 Mr Hoyle: I am asking you. I am giving you the genie and you have got to make that one wish. What would it be?

Mr Culloty: My one wish would be better focused and targeted grant support for real added value technical projects. It would not just be low carbon and electric trucks that may or may not happen, it would be optimising the practical real solutions that we know will be on the road in the next four to five years. It would be making that real deliverable happen.

Q245 Chairman: Can I ask you a bit about your supply chain. We discussed this at the factory, but for the record how many suppliers altogether do you have supplying your company?

Mrs Paver: For our product we have 130, of which about half are based in the UK.

Q246 Chairman: About half in the UK. How local are they to here? Do they cover the whole country?

Mrs Paver: The whole country, yes.

Q247 Chairman: Some of them are quite high value suppliers, the engines, the axles.

Mrs Paver: The engines come out of Darlington, axles come out of Glasgow, and then we have a fabrication base which is perhaps more local than that that is within a 50 mile radius.

Mr Culloty: Still a reasonable density of population in the West Midlands as well, that is still a supply area for us.

Q248 Chairman: How important is the geographical location of your suppliers in terms of the manufacturing process?

Mrs Paver: It is more critical to us that we have the right supplier. We discussed quality a little bit earlier and we go for the right supplier. Where it becomes a question mark in today's environment is the currency that it is based in. The previous witness's comments were it is an advantage in the UK to be a supplier now, and that is absolutely right. If there were more of them we could take more advantage of that.

Q249 Chairman: How big are your UK suppliers? Can you give us a sense of scale? You cannot tell me how many people they employ between them, you would not know that, but what is the balance of size between Europe and Britain? There are some big ones but a lot of UK suppliers as well in that.

Mr Culloty: Absolutely. The two suppliers you mentioned, Cummins in the Northeast and Albion in Glasgow, are big suppliers and then I would suggest the balance of the rest of our suppliers is relatively small fabrication-type suppliers. In terms of growth, and specifically technically advanced companies, the centre of mass of those is probably in Western Europe rather than in the UK.

Q250 Mr Hoyle: Part of the issue would be that you have been heavily reliant on supply chains from Europe because of the euro/pound differential and a lot of investment went into receiving from there. Can you see that turning round because cabs that used to come from Coventry are now built in France and brought over to Leyland to go on the trucks? Do you see a manoeuvre within the company because the pound is down, the euro has strengthened, and we could actually see some of those supply chains coming back to the UK? When we talked to the car industry the one thing they said, which was very interesting, was that they want them next door to them because if you are operating just-in-time you walk across the yard and your supply comes in. If it is a truck seat or a cab it is there on site and it is within two miles or whatever. Is that what you see as the future and is there a chance that we can see some benefits from some of that supply coming back into the UK?

Mrs Paver: There is definitely an opportunity for suppliers to make that move from the Continent to the UK because of the currency issue. We will continue to scour suppliers that are in the UK. That is always our first port of call. We do not see that movement happening yet.

Mr Culloty: We have probably seen one or two examples of that happening in the last year, things going from Europe into the UK. To be ready to go, are there suppliers of this sort of casting in the UK or that sort of moulding, they are not ready to jump out of the blocks to support our needs. The UK is not ready to take the strain on some of these supply lines right now.

Q251 Mr Binley: Why do you believe that to be the case?

Mr Culloty: We talked about hollowing out before and I think many of those skills and developing capabilities drifted out of the UK 10/15 years ago, the centre of mass of technology for some of these components and manufacturing processes is Western Europe, so they are not in that particular business right now. There are good examples of components we are looking to upgrade in our vehicle and we are looking to move from ordinary technology to advanced technology. We are looking in the UK, looking at suppliers and we do not typically find that many people ready to support us right now.

Q252 Chairman: Apart from the quantity of suppliers available offering specialist skills, how do you assess the quality and reliability on the whole of the UK supply chain?

Mr Culloty: I do not think we would score a difference between UK and non-UK. We measure our suppliers very, very closely, we approve them and authorise them prior to placing a component with them. We measure their quality very, very assertively when it is with us and if there are any issues we push back on that. Our biggest challenges are probably suppliers in financial difficulties and sometimes that leaks in.

Q253 Chairman: That was the next question I was going to ask you. What is your assessment of the financial viability of your supply chain and what are you doing to help them?

Mrs Paver: We have a very detailed programme of continuing to monitor our supply base right now in terms of financial risk. We monitor things like Dun & Bradstreet type reports, things that are out there in the industry. We contact them and have sent out financial surveys asking them how they are doing, et cetera. We have routine visits into suppliers as part of our quality visits, purchasing visits, and are looking and talking to them and asking how they are doing. We are keeping a very close monitor on about ten of our suppliers that we perceive to be at some form of risk at this point.

Q254 Chairman: Because that has implications for your own ability to continue producing trucks, does it not?

Mrs Paver: Yes.

Q255 Chairman: Very serious implications. I do not want to trespass on the questions Brian is going to ask about Government policy, but can we just look at the finance issue while we are here. We heard quite a lot of concern expressed yesterday in Birmingham about a lack of appetite in the banks for the automotive sector. The last witness said he thought it was more general than that, small businesses generally. When we were talking to you privately you expressed concern about the way that the Government policies to support lending were not focused sufficiently on some of these medium-sized companies in the supply chain. Do you want to articulate some of that financial background your suppliers are facing?

Mr Barfoot: I cannot answer that question in terms of the supply chain, but in terms of our end users or customers what they are telling us is basically the banks are not interested. There has been a lot of discussion in the media and positive reaction to the various Government support schemes but when it comes to accessing those various programmes they go to their banks, the brick walls come up and the banks are not really interested in helping them.

Q256 Chairman: The banks have got a very different story. I met a very senior banker yesterday and he said the problem is finding viable businesses to lend to, they have got the money, but the definition of a viable business is the issue. He also made the point that the withdrawal of the foreign banks from the British banks means that British banks are lending as much or more than ever but there is not the same amount of capital in the market. Do you recognise those descriptions?

Mr Barfoot: Some banks have identified very specific industry sectors that they are not prepared to lend to. The previous witness touched on the automotive sector and certainly the feedback we get from our customers is that if you are in the automotive sector or transportation or construction, or the business of public houses, they will not lend to those sectors.

Q257 Chairman: We may have a share in the blame for that last one!

Mr Barfoot: There are some very, very clear industry sectors that the banks are just not interested in.

Q258 Mr Wright: On that particular point, what representations have you made to Government or, indeed, the banking industry in that respect? Has there been a representation or is it just something that people accept as a fait accompli?

Mr Barfoot: We did a mailshot to all our customers to encourage them to access these various programmes because it is very important to us that we have viable customers at the end of the chain. Basically what they told us was, "You are the only people we have heard from in relation to these programmes. We have not heard from our banks. We have not heard from any Government bodies. We have not heard from any of the business enterprise units or anything like that. The only people we have heard from is yourselves".

Q259 Mr Wright: What have you done to make representations to the banks on behalf of these people? After all, if they can borrow the money they can buy your vehicles and everything goes round.

Mr Barfoot: We had a meeting a few months ago in our offices in Thame and we made some representations on our initial findings. The story there was a little bit earlier than where we are now, but we gave our local MP the sort of feedback we are talking about today.

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 in the park. 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 ten 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.

Q280 Mr Wright: And help from Government would be helpful in that respect?

Mr Culloty: Yes, we still run a modern apprentice scheme. We have got 20 apprentices in that scheme and financially that is expensive. We intend to continue with that but, again, help or support to invigorate that would be really good. Typically we bring graduates in at the rate of four or five a year and we have even had to pause that in the current climate. Help to keep those skills streams coming forward for the future would be the right thing to do.

Q281 Mr Wright: We understand that you have been in partnership with the Northwest Development Agency over a particular issue. Has that been successful?

Mr Culloty: It has been very successful. It was an opportunity that came up at short notice. We worked very closely with some good guidance and we did a great job upskilling our professional staff within the quite precise rules laid down by the NWDA. It was very productive, very successful. If there was an opportunity to do something like that again for the next level, technician staff within the business, I would heartily encourage that. Yes, we are delighted with how that relationship and support came from nowhere. That is one of the good things we have seen in the last six months.

Mrs Paver: If I could just add to that. It came on quickly was Denis's comment. We ask the question what is out there but sometimes it is good to get a push from Government on what is available. We can ask a question but it may not be the right question. We would want to take advantage of more of these things. We acted on this one, it came across quickly and we jumped on it. We would like to have more time with that, to think through them and take advantage of more of them.

Q282 Mr Wright: I am a great supporter of the Regional Development Agencies, they have been a very good tool certainly during the recession and in regeneration. Would you consider that the focus should be more on the Development Agencies rather than central Government, so central Government would say to the Development Agencies, "There's the funding, develop your strategies around retraining"? Would you find that would be a better strategy?

Mr Culloty: I would say yes. We would see more objective pragmatism and understanding of the business needs at that regional level rather than at the higher level. That is our experience and that has worked for us.

Q283 Mr Hoyle: Just following on from Tony, the Northwest Development Agency money is Government money and the reason they acted quickly was they were contacted by the MPs as well. If you look at your files there is quite a lot of correspondence from us and I wanted to make sure you knew that when you said there does not seem to have been anything from the local MP. I just want to get that on the record. We got this out of the car manufacturers yesterday - JLR. What I have been pushing for, and they totally agreed, and it is perhaps in their submission, is that instead of people being made redundant and the Government paying them at the JobCentre we should be supporting them through short-time working subsidy to help keep your workforce in place and that allows you to do the training there so you are not looking for skills when the upturn comes. Do you think that would have been an initiative that could have made a real difference for you?

Mrs Paver: That is definitely something that should be explored, yes.

Q284 Mr Binley: I have two very quick questions. I was disturbed by your comments about the graduate programme not bringing R&D skills forward. That concerns me enormously because we are putting a lot of emphasis on our graduate programme, I believe to the detriment of skills in NVQ3 and those sorts of levels. How do we improve that? The second concern I have, and the regional development people are not going to like this one bit, is my fear is that regions for many of the SME businesses are too far away and I want to shut them down and have it at county level or something of that kind. Is there an advantage there or do you see the region as being the place to be for you?

Mr Culloty: I would not comment on region against county.

Mr Hoyle: We are only ten miles off two of the county boundaries, Brian.

Q285 Mr Binley: You are all right in Lancashire but I wonder if they would say the same in other counties.

Mr Culloty: You asked about graduates and what we should do there. The reality is we have taken our workforce down significantly, we have taken people out at all levels from the highest level down to graduate level as well. We have taken the hard decision that we cannot bring those people in in the current climate.

Q286 Mr Binley: We are going to look to the upturn, we are going to exploit the upturn and this is vital in that respect.

Mr Culloty: Absolutely. If there was some way of funding something for a year or starting a process off then that would be a massive boost for us because we really do need that. Any support there would be terrific, absolutely.

Q287 Chairman: I think that covers it. When we had our private meeting with you I think you identified five areas you wanted to talk to us about: the focus of the Automotive Assistance Programme; the focus on low carbon; the relationships between Government departments and the complexity of that; the issues around finance and lending; and particularly the schemes as they affect the supply chain. Those were the issues that you identified and I think we have got that all on the record. Is there anything else you feel we have not said to you that we should have asked you about? If you think about it afterwards you are very welcome to write a letter.

Mr Culloty: We did mention the RPC Scheme and Andrea asked me to restate that, the change to vehicle excise duty, but that is on the record. The question was what would we have looked for from the Budget and we would have looked for a reduced pollution scheme to slightly incentivise operators to buy new vehicles at a lower emission level. If that was something that could happen that would make a great deal of sense. It does not cost much money, but makes people think "You know, now is the good time to buy a truck".

Chairman: Sitting in a chair that Mr Hoyle occupied 11 or 12 years ago I must give him the last question.

Q288 Mr Hoyle: I used to be the Mayor. I would have thought the other initiatives about trying to persuade people is the tax works the wrong way round from buying a new vehicle because it slides backwards. Should it be that you get your tax relief upfront when you buy a new vehicle? It is on a sliding scale and if you invest it tapers down over a couple of years. Should capital allowance have been put upfront in order to get people to invest in new vehicles?

Mr Barfoot: Certainly there were some improvements to capital allowances in the last Budget but that could have gone a lot further. We are in such a situation at the moment where any stimulus to assist commercial vehicle purchase that could have been brought upfront would be to the greater good. It need not necessarily be across the board, it could have been specifically determined for commercial vehicles, for example.

Chairman: Thank you very much. If after this meeting you think of something you wish you had said, just get in touch with the clerk. The door is not yet fully closed. Thank you very much and our gratitude for this morning as well. Thank you.


Witness: Mr Mark Hughes, Executive Director, Economic Development, North West Development Agency, gave evidence.

Q289 Chairman: Thank you very much indeed. Can I begin by asking you to introduce yourself and explain your role in the Agency.

Mr Hughes: My name is Mark Hughes. I am the Executive Director for Economic Development at the Agency. In this context I have got responsibility for the business support activities of the Northwest Development Agency.

Q290 Mr Hoyle: Obviously the Northwest is a big area for automotive, whether it is JLR, Vauxhall, Bentley, but more importantly amongst that is the commercial vehicle sector and Leyland Trucks which is a big employer in this area. Can you foresee any other sector replacing the automotive sector in this local economy or in the economy of the Northwest?

Mr Hughes: I would probably put the question round a different way. I do not think we need to foresee a future where the auto sector is not part of the Northwest economy. Currently it employs about 40,000 people in the Northwest and has approximately 500 businesses here. It has got very high productivity, a good competitive base and it follows through on a number of the R&D innovation programmes that each of the manufacturers is following. There is no reason to foresee in the future why we cannot continue to have a strong manufacturing sector within the Northwest. To give another component to my answer, the Northwest is very fortunate in the current economic conditions in that we have a very diversified economy. We have significant growth taking place in other sectors, in defence, aerospace, nuclear, digital and creative environmental technologies and, as I said, we are fortunate to have that diverse base and there are crossovers between some of the activities taking place in auto and those in other sectors. We are diversified and have good growth, so I do not think it is about finding something to replace auto but continuing to support auto to grow again in the future.

Q291 Mr Hoyle: Do you see growth of the auto industry or do you see that this is the level it is going to remain at, or will it decline?

Mr Hughes: If you look to the future there is nothing to say that vehicles are not going to be part of our daily lives, as it were. There are massive legislative and environmental drivers for innovation within the auto sector, therefore there is a huge opportunity for the auto sector to grow again in the Northwest. Whether it will continue to maintain the levels of employment is a different question. It is very high value. If you look at the average GVA contribution within the auto sector it is double what the average is for the whole economy, so in that respect although it might be small ---

Q292 Mr Hoyle: What is the percentage of the Northwest economy roughly?

Mr Hughes: Roughly it is about 3 billion. In GVA terms it is 3 billion in a 115 billion economy. If you look at the added value nature of that it is double the average for the whole of the economy. Small higher value would be the synopsis for it.

Q293 Mr Hoyle: Obviously you know the region very well and you know we have got leading skills within aerospace, there is no doubt about it, we lead the world in aerospace technology, but is there anything you feel you can do to bring those technologies together from a Fighter Attack Aircraft to a civil application into the automotive industry? Is there a way of knitting that together that does not take place now?

Mr Hughes: There are examples where we are doing that. The example of the Northwest Composite Centre has already been touched on by the previous witnesses and that is something the Agency funded obviously with central Government money. The structures are there or can be put in there. The businesses in which the technologies can reside, where is the near-term incentive for them because the transfer and commercialisation process is quite long and they need short-term return on profits, that is the issue. To maybe address that you have to look at the incentives that exist around technology development and R&D to then pull profit through that system. There are opportunities, but currently they are not as quick or as pervasive as we would want. In terms of auto you have talked a lot about low carbon growth and supply chains and there are opportunities in there around light vehicles, there is electrical and chemical development within auto in the future that relates to other sectors in the Northwest. There is a strong chemical sector in the Northwest and a strong electrical engineering background in the Northwest and the other benefit of returning and growing the auto sector in the Northwest is it actually connects with a lot of other sectors within the region in which we do have certain concentrations of expertise within our higher education institutions. We have talked about linkages, as you have, between aerospace and business and I think there is also a focus around linkages between higher education institutions and businesses and how that work can more effectively in the future.

Q294 Chairman: Can I just ask you one question of some importance. Our last witnesses talked very plausibly about the need to develop composite technology in the automotive sector, but the Southwest also has centres of excellence in composite technology. Are the Northwest and Southwest talking together about rival or comparable programmes?

Mr Hughes: This question has come up a number of times and existed previously. We work as an RDA family, particularly when it comes to sectoral interventions. We have a working group between the Southwest, SEEDA, Northeast and the West Midlands around the automotive sector. What you might find is initiatives called similar things in different regions but when you pull up the skin between those initiatives they are concentrating on different aspects of the problem and working complementarily underneath. I would have to provide details on where they link but I am pretty confident they are not competing. If I go to a different sector, the biomedical sector, we have biomedical research centres in the Northwest and similar centres in the Northeast which the RDAs are supporting and we spent a huge amount of time working with the Northeast RDA to make sure they were complementary rather than competitive.

Chairman: Rather unusually I am going to have to call the senior member, Mr Hoyle, to the chair briefly. I have an urgent matter I have got to deal with outside.

In the absence of the Chairman, Mr Hoyle was called to the Chair

Q295 Mr Wright: As regards your role as the RDA, what have you done to help sustain the industry during the present crisis?

Mr Hughes: I think when we look at that we need to look at two things really. One is what we do in terms of general business support and then what we are doing in terms of specific support for the auto sector. The auto sector does have opportunities for assistance beyond things like the Automotive Assistance Programme. If I just touch upon a few of the mainstream things for the moment. With the Business Link service, which is a key conduit for business support, we introduced an access to finance service in November last year and that has provided assistance to 800 companies in that period, of which a number are automotive.

Q296 Mr Wright: Is that just financial advice or financial help?

Mr Hughes: That is help and advice. There is a financial health check first of all and then actual assistance with accessing finance. Business Link itself does not give finance, the Agency is the granting body. The other thing that service has done, and I am sure we will come on to the banks, has been to work with the banks and reposition businesses with the banks so the banks will actually lend to them. Another component of that is with a number of the banks what they have offered is a review opportunity, so if they have turned down a loan facility or loan request from one company Business Link has been able to review that and go back to the bank and present another proposition and secure funding for them. That is core frontline, as it were, that is available to all businesses. Most of our grant offerings are available to all businesses, including the automotive sector. Government and RDAs have spent probably the last 18 months trying to tidy up business support and simplify it and make it more eligible for more businesses. We have a grant for business investment that is available for auto companies and grants for innovation that are available to auto companies. Again, I can provide detailed material on the take-up of those within the automotive sector. If we move specifically to auto assistance, we have put in place a number of initiatives. The training one is the one that gets discussed which is also being used by Bentley, and Leyland are obviously part of it, and one other manufacturer utilises that. That was a million and a half funding going into particular training. We also have a supply chain programme which is about a three million programme working with auto companies on their supply chain initiatives. We support something called the Northwest Automotive Alliance which works with the auto companies in terms of developing market opportunities. There are some dedicated auto assistance programmes, some of which have been in existence for some time and some of which have come into place as a direct response to the situation we are in at the moment. The other thing for us is to utilise any of the national schemes that are available and try to raise awareness. There were some comments earlier on about awareness and understanding of the national schemes and that is something we have been trying to work on with businesses within the region because it is still a bit opaque and unclear.

Q297 Mr Wright: You did mention the banking issues and how you are trying to help the industry with that. Quite clearly there is a specific problem with the truck manufacturers on the basis that it is the people who purchase them who cannot get to the banks. Have you made representations to the banks in respect of that difficulty? If you could release finance through that route then it resolves the problem at the other end.

Mr Hughes: Absolutely. No, we have not on that particular problem but we will have to after today. We meet the commercial banks on a regular basis. We had a meeting with eight of the commercial banks from the region last night on the access to finance question. It is one of those wicked, wicked problems. At a macro level, fundamentally what is happening is the amount of money in the system has been drastically reduced and the cost of that money is going up. Those are two fundamentals you just cannot get away from. We are in a readjustment process at the moment, we are not going to go back to where we were 18/24 months ago. Unfortunately, businesses have to change their business models to adjust to a new reality and that is what is happening at the moment. The banks will tell a somewhat convincing story about the amount of lending that they are making, but at the same time you have lots of examples of individual businesses who have been turned down or had their provisions renegotiated at the same time. Trying to get a very clear take on which one of those is the real world is actually quite difficult because they co-exist at the same time.

Q298 Mr Wright: What else is it that you think you could do if you had greater resources? Is there much more? There must be something where you think, "I really want to do this".

Mr Hughes: I do not think it is necessarily in some respects greater resources for the total effort, it is the channelling and effective deployment of those resources. Previous people have talked a lot about skills and innovation and I think those are the two key things over the medium and long-term. There is a wealth of resources, a wealth of money available across Government in those areas, it is just not coordinated enough and delivered at the right level enough. You can look at billions that are spent and made available for skills development and similar numbers available for innovation, but they are not channelled through an industry window and in a particular way. I guess one hope I have is that the New Industry, New Jobs approach will actually lead to a greater industry focus for the channelling of the delivery of resources to businesses. That is the one big change that I would make.

Q299 Mr Wright: Within your organisation do you have someone specific to the automotive industry to take care of that?

Mr Hughes: Yes, I do. We also sponsor the Northwest Automotive Alliance as well, which is a dedicated industry body which gets that industry voice around one table to clearly explain to us the kinds of issues it has got and what it would like us to do and then we also use that as a kind of conduit to engage with national and European auto groups. I do have an auto person, for want of a better word. Within most of our other business support activities one thing that we have been able to do is we have now sectorised them as well, so with UKTI and trade, the trade people in the region, we have got auto people and in Business Link we have got auto people. We have replicated that across our programmes and those teams get together on a regular basis to share intelligence and information. It is not perfect and it does not do everything that people would probably want it to do, but it is a significant advance on where we were three years ago.

Q300 Mr Wright: How do you see your long-term future through this recession and beyond? Do you see it playing more of an active role or just carrying on as you have done?

Mr Hughes: The RDA?

Q301 Mr Wright: The RDA

Mr Hughes: That will be determined by Government. If it was up to us we would continue to drive a sectoral approach to our activity and the auto sector is one of our key sectors set out in our Regional Economic Strategy. We are in the process now of developing a new single strategy for the region and I would anticipate auto continuing to be one of the priorities and, therefore, we would organise our resources to work with that sector. I just go back to the point around there is only so much we can do in the region and the big slugs of resources are managed nationally, particularly around the innovation and skills agenda, and it is how do you get those to have a sector focus and a local delivery focus. If we can get more of that in the system then I think we will get more direct impact on the ground.

Q302 Mr Binley: I have got a particular problem there about connection with the local level because that is where most SMEs operate and it concerns me, but I would like to come to that a little later. We have heard of the difficulties that at least a couple of businesses with sizeable supply chains are experiencing with regard to liquidity and their relationships with the banks. I have got concerns that expectations were raised too quickly and in too great a manner in terms of the schemes available. You have heard those problems, but how do you feed them back? What is your connection with Government in that respect?

Mr Hughes: It is varied. Clearly the RDA sponsor organisation is BERR and, therefore, we have direct channels both into the BERR team that manages the RDAs as a group but, as importantly, into the divisions within BERR, so the auto group within BERR, the enterprise and finance group within BERR and the skills group within BERR. Also, outside of that, the RDAs have direct lines into DIUS. DIUS would be the other department that would be key within this arena. I think we have pretty good channels at the Civil Service level and it works reasonably well in terms of the opportunities to communicate well and what follows from that communication then takes time to work through.

Q303 Mr Binley: Do you feel BERR is too leaden to react quickly? Liquidity is about very quick action: you are great today, tomorrow you have got a £45,000 bad debt and you are in serious trouble.

Mr Hughes: BERR's role is not a delivery role in that sense.

Q304 Mr Binley: No, it is not, but it is your major channel and they are a feedback in this respect. I wonder how we can make them react more quickly to news out here.

Mr Hughes: They react and acknowledge the issues quickly, I genuinely do feel that, but the issue comes, and the previous witness touched on it, as to how quickly can you turn round the recognition of an issue into the design and delivery of a solution. Then you get into the wonderful world of state aid, procurement, legal and where is there market failure, where should the Government intervene, where should it not intervene, and that is what jams the system up. It is the design and the implementation that jams it up in the first instance and, secondly, the initial deployment of the initiatives. If you take the Enterprise Finance Guarantee Scheme you had an announcement on that, the practical information on that flowed out a little bit later after the announcement, so the phone calls to Business Link went through the ceiling on the day of the announcement and the information might come through a little later. The description of how it works within banks is absolutely bang-on and we are dealing with most of them. There is a lot of legacy in the banks around the Small Firm Loan Guarantee Scheme. The Enterprise Finance Guarantee Scheme is completely different and is a major move on from the Small Firm Loan Guarantee Scheme and has many positive features. There is a legacy, a background, of negativity there. If you look at the number of relationship managers that the banks have to get to with his new information there are tens of thousands of them, so how do you get that information, and not only the information but the understanding of how it works, to 10,000 people across eight different organisations in 24 hours? It is just impossible. I do feel the acknowledgement of the issues is quick, it is the design and implementation that takes longer. Some of that is necessary because you have got to get the scheme right. The last thing you want to do is launch a scheme and then find out on day two you have got some serious problems in delivery.

Q305 Mr Binley: You are not referring to VAT and scrappage, are you?

Mr Hughes: No, not at all. Other things have worked really well. I will just throw this in because it is something that is not trumpeted enough. If you look at the HMRC reaction around extending Revenue and Customs payments, we have had around about £200 million in this region alone of rescheduled payments. I know at the end of the day they have got to be paid, but in terms of managing cash flow that has been a significant help. If you look at the level of Enterprise Finance Guarantee Loans deployed in the region, it is 40 million. If you look at the difference in those two things, there has been some significant aid that has worked very quickly and very smoothly but some of the other schemes are practically difficult to implement.

Q306 Mr Binley: I am grateful for that. Two very quick questions because time is now pressing. I am concerned about this getting down to lots of people if you have got a big region and I wonder how you deal with that and how you might deal with it if you had more resources. Secondly, I would like a quick view on your connections with universities and their relationship in promoting innovation and helping to develop it.

Mr Hughes: In terms of the region, I will not go into the huge debate about non-RDAs and everything else. I joined the RDA from the private sector and joined for a particular reason. I think we are a good place where economy of scale and scope come into effect. We understand policy but, most importantly, we understand delivery and if we can connect policy and delivery understanding together I think you get the optimum balance. I design interventions but I also get immediate feedback on how they are working and how we need to tweak them. Now I will move on to your question about universities. It is a difficult one. Universities are multi-headed beasts. They are major contributors to the local economies. They receive massive amounts of public sector funding and there are good examples where they make significant contributions to working with businesses. You do have to wonder at the extent to which they are not driven enough to the national economic interest of particular sectors and more could be done there.

Mr Binley: That is very interesting and helpful.

Mr Hoyle: Thank you for your time and thank you to the Northwest Development Agency for all that you do, Steve Broomhead and all of the team. I think you do a great job for the region. Thank you for what you have done for our local businesses. When I have needed you, you have been there and you also helped with the Leyland Trucks situation. Thank you very much for that and thank you for your evidence.