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8.16 pm
Lord Bates: My Lords, I join in paying tribute to the noble Lord, Lord Harrison, for securing this timely debate. I identify very much with his tribute to the importance of this industry and its excellent record in manufacturing in this country. I declare my interest, as listed in the register, as a non-executive director of the Vardy Group of Companies, which includes motor retailing among its many activities.
Coming from the north-east of England, the main focus of my interest is the wonderful Nissan company. It came to the north-east of England in 1984, courtesy of the efforts of my noble friend Lady Thatcher. It has had a tremendous impact on the north-east of England. It is the largest car plant in the United Kingdom and the most efficient in Europe. Last year it exported 75 per cent of its output through the port of Tyne to 45 countries, and Russia is its largest market. Its emphasis on lean manufacturing and continuous improvement has improved the competitiveness of more than 300 suppliers in the region. It is estimated that 56 per cent of manufacturing jobs in the north-east region are linked directly or indirectly to Nissan. The current lead model, Qashqai, has been Nissan’s most successful model ever.
This is borne out by the outstanding leadership team at Nissan who have taken some very tough decisions over recent weeks in securing the long-term competitiveness of the plant. It behoves the Government and all policy-makers to see what they can do as well. The proposals I want to put forward are not aimed at bailing out a failing manufacturer—far from it. Nissan is an outstanding success story and is more than able to stand on its own two feet. My proposals are aimed, rather, at freeing up the market.
Most vehicles are purchased from manufacturers by retailers using finance companies, such as Renault or Ford Finance, rather than banks. Trade finance from these sources, however, is drying up and desperately
19 Jan 2009 : Column 1522
He said that it was impacting companies whose,
- “business models are not flawed, but the credit crunch has drastically reduced the amount of capital available”. [Official Report, 14/01/09; col. 1225.]
I totally agree with that analysis. Why, therefore, are the Government persisting with the failed policy of the VAT reduction? The projected cost of the reduction was £12.5 billion over a 13-month period. If it was scrapped now, that could release £8 billion to go towards tackling the real problem of credit availability.
Finally, the Government may care to consider the following idea. In Germany, Italy and Spain, scrapping incentives have been introduced for manufacturers. Under these schemes, high-polluting old cars qualify for a special grant of about €2,000 when they are traded in for new energy-efficient vehicles. That is good for the economy and good for the environment. Will the Government explore the feasibility of introducing such a scheme here?
The message is that Nissan was and is a world-class car manufacturer and through carefully targeted stimulus packages we will ensure that it continues to be so.
8.21 pm
Lord Jones: My Lords, my noble friend Lord Harrison, as a one-time Member of the European Parliament, had great standing in Cheshire and Wirral. He was foremost in supporting the industry, not least in Ellesmere Port, Wirral, the home of the General Motors Vauxhall Astra production. This plant is important, not only to the economy of north-west England, but to north-east Wales and to Deeside especially. We in Wales do not want the collapse of any work in neighbouring Wirral. There is immense travelling to work from north-east Wales to Wirral and vice versa.
As shadow Minister for Wales in 1991, I was present alongside the then Secretary of State for Wales—the noble Lord, Lord Hunt—when Toyota UK conducted a ceremony to commemorate the building of an engine plant at Deeside in north-east Wales. The Deeside engine plant was built to time and many hundreds of people now work there. Sadly, however, Toyota UK has declared this year that an £88 million new engine development for Deeside in north-east Wales is to be postponed. Nobody in the company, in the workforce or in Deeside took pleasure in this announcement. It is a body blow to a most successful management team and workforce active in Wales.
Toyota on Deeside has been superb in training employees, in supporting our county council of Flintshire and in helping dozens of local charities and voluntary organisations. We had hoped to see this £88 million investment go ahead as a reward for what we had delivered in this part of Wales. Wales needs developments such as these. Such developments create skills, and skills are the lifeblood of the Principality.
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I wish the plant well and I hope the Government will respond powerfully to the needs of the industry, not least for this exceptional workplace on the banks of the River Dee in Flintshire.
8.23 pm
Lord Bhattacharyya: My Lords, I declare an interest as professor of manufacturing at Warwick University.
The House has heard a great deal about the current state of the car industry. The issues have been debated thoroughly in the press and here today. I concur with what other noble Lords have said and, in the brief time available, I shall not add to their analysis.
We have fantastic inward investment companies producing cars in Britain. Toyota, Honda and Nissan are efficient companies that produce superb cars, which are usually designed in their home country. We are lucky to have their manufacturing facilities here and should support them. For these companies, the problem is one of consumer credit. If they cannot access credit, they cannot offer loans to consumers. If the consumers cannot get loans, they will not buy cars. If consumers do not buy cars, factories close or go on short time. We can and should break this logjam, but we must go further.
For the last 20 years, we have heard about the importance of the service sector, the knowledge-based economy, sunrise industries et cetera. Less has been said about the need for a vibrant manufacturing industry. Much of this is the fault of manufacturing itself. The 1970s and 1980s were not a good advertisement for British manufacturing. Due to lack of investment, poor management and a weak skills base, the British car industry was virtually wiped out by competition from Japan. France and Germany faced the same foreign competition but were more successful in their response. They restructured their industries with state support and developed new products that appealed to consumers, using their local, indigenous companies. We find the same success at home. The aerospace industry received government support through launch aid and other channels. It used the opportunity to develop better products and became a very successful exporter.
The car industry is facing huge challenges over the next decade, from emissions to safety regulations, and a new generation of high-tech but low-carbon cars will be required. The companies that best meet these global needs will grow as the world emerges from recession. We have a unique tactical opportunity. As our products are high quality, we exported over a million cars in 2007, an increase of more than 7 per cent. In fact, we exported £170 billion-worth of manufactured goods, which was more than half of total British exports. With sterling at current levels, we have the chance to see our exports and European market share grow in the short term. However, for growth to continue beyond the narrow horizons of currency traders, short-term advantage must be supported by long-term investment. Investment for the future requires access to capital today. We need a level playing field with our competitors in Europe and the United States.
Jaguar Land Rover is the only major car company with an extensive R&D base in Britain. It plans to invest £800 million on a new product and a low-carbon
19 Jan 2009 : Column 1524
The Government are saying the right things about easing the credit situation and they are using the right language about the need for a vibrant manufacturing sector. The Government say that help is coming. What I think we all want to know is, “How long?”.
8.27 pm
Lord Cotter: My Lords, we have had a timely debate today, as there is no question but that the automotive industry is highly important. I pay tribute to the noble Lord, Lord Harrison, for calling this debate and particularly for referring to the importance of the small business sector. Of course the automotive industry is important as an exporter—it accounts for 11 per cent of this country’s exports—but it is also important in that we are talking not only about big companies but about the small businesses that feed them. The success or failure of the automotive companies therefore impacts throughout the country. For example, Jaguar Land Rover employs some 15,000 people but reckons to support a further 60,000 jobs through suppliers and dealerships.
Coincidentally, just this last Saturday I helped to launch a community bus—called Bluey—in my village, Congresbury. That minibus has a number of components, such as a lift for a wheelchair, raised and lowered steps and so on. An automotive vehicle is made up of a number of components and provides jobs elsewhere.
So what to do? The Government have today announced a further initiative to try to get credit and lending flowing. I hope that this time the banks will respond fully and with openness and that they will take the action that we are looking forward to them taking.
In this connection, we have all been dismayed by some parts of the financial sector, but Jaguar Land Rover says that its managers will not receive any bonuses this year. I hope that the financial sector will bear that in mind, because the way things have happened there has been outrageous.
As has been mentioned, there is an important opportunity to encourage environmentally friendly vehicles—good for the environment, of course, but good for us for export. There is a possibility of increasing loans to carmakers, as referred to by the noble Lord, Lord Harrison, from the European Investment Bank, according to the European Union Industry Commissioner. Money should be used from that source and others for investment and restructuring rather than just for keeping the operation going. I hope that we may have a response and clarification from the Minister on that.
We could put into the melting pot the suggestion that vehicle scrapping should be encouraged to give the opportunity for older vehicles to be put to one side, if you like, and to encourage the take-up of fuel-efficient technologies to renew our fleets.
19 Jan 2009 : Column 1525
Returning to today's Statement, I know that the Finance and Leasing Association has expressed hopes that its sector will get practical encouragement. Has that been taken into account? We all look forward to hearing the Minister's response to our debate today, an important debate at this crucial time for the economy of this country.
8.31 pm
Lord De Mauley: My Lords, I congratulate the noble Lord, Lord Harrison, on initiating this debate with such impeccable timing. I also, very belatedly, welcome the Minister to the Dispatch Box, as this is the first time that we have faced each other. We look forward to his skill and experience being addressed to the problems that our country faces in fields such as this.
The economic troubles that have engulfed us all have recently led Jaguar Land Rover, BMW Oxford, Honda, Aston Martin, Vauxhall and Nissan to announce closures, cuts or other steps in an attempt to stave off the worst, with all the redundancies, loss of skills and general pain that that will involve. In October, production of cars fell by as much as a quarter and, of commercial vehicles, by more than 40 per cent—that in a single month.
The importance of the motor sector is so much greater than that of the manufacturers alone, because it extends to suppliers, to whom several noble Lords have referred, small businesses, in particular, to which the noble Lord, Lord Rowe-Beddoe, and others referred, as well as to the motor finance industry, to which my noble friend Lord James of Blackheath referred. This is not exclusively a credit-crunch phenomenon. Our trade deficit in motors has doubled over a dozen years. Jobs in the industry fell by nearly 40 per cent over 10 years from 1998.
Last year, frustrated by lack of government support for UK industry, Rolls-Royce located a new testing facility in Germany, rather than Derby. An executive told the FT that the Germans value manufacturing, that there is better productivity and that they have a better education system. The Government have chosen not to be competitive. Britain has caused that industry to export its capabilities.
The Government's response to current problems has been both to dither—the Secretary of State was said to be considering what to do as long ago as November—and to make life more difficult. The rise in excise duty bands, for example, will affect nearly three-quarters of cars, which will do nothing for demand.
Ministers often try to paint this party as the one of inaction, but its dithering shows that it is Labour that is truly worthy of that title. What we need now, rather than ineffective VAT cuts or unconditional bail-outs of specific industries, is affordable credit for viable companies—not just small companies, but all companies, including the motor companies.
The scheme announced on Wednesday extends only to companies with turnover of up to £500 million. I am sure the Minister will be able to tell us how many of the auto manufacturers I mentioned earlier that will help. The noble Lord, Lord Harrison, asked what
19 Jan 2009 : Column 1526
- “would not help the British economy or the people of this country”.—[Official Report, Commons, 18/12/08; col. 1229.]
Yet it was strongly supported by the leading trade bodies and commentators. All Ministers could do then was rubbish it, yet here they were on Wednesday proudly announcing a pale imitation of it.
I join other noble Lords in asking the Minister most importantly if the loan guarantee scheme will be extended to all companies, including Jaguar, Land Rover, Aston Martin and the others, and if so, on what scale. Secondly, while the extension of the special liquidities scheme to consumer car loans is welcome as far as it goes, as the noble Lord, Lord Harrison, asked, will the Government give the non-bank motor finance companies full access to the recently announced liquidity and guarantee schemes? And thirdly, when will the EIB money for R&D, which their German and other competitors have already accessed, be released to our auto companies?
8.36 pm
The Parliamentary Under-Secretary of State for Communications, Technology and Broadcasting (Lord Carter of Barnes): My Lords, I, too, congratulate the noble Lord, Lord Harrison, on securing this debate. I registered 14 specific questions in his informed intervention; I hope, therefore, that he will forgive me if I fail to capture all of them tonight. He can rest assured, as can others, that those that are missed verbally will be returned to in writing.
I welcome this opportunity to respond to the comments made. I listened to the intensity of the debate and the strength of feeling, as well as the significance of the challenges. The House should be very clear that the Department for Business, Enterprise and Regulatory Reform is extremely focussed on all these issues, on the importance of this sector and on its reach into the economy, both geographically and into other businesses. I apologise to noble Lords for being a pale imitation of my noble friend Lord Mandelson, of Hartlepool and Foy, who is currently on a trade mission to India. As I listened to this debate, I was rather wishing I had taken up his invitation to join him. However, I know the issues facing the sector are at the forefront of my noble friend’s mind and his travel schedule. In addition, while he is in India, he is scheduled to meet many leading business women and men, including Ratan Tata, to discuss how industry, including the automotive industry, is faring during this difficult period.
With the exception of the interventions from the noble Earl, Lord Mar and Kellie, and the noble Lord, Lord Cotter, most of the comments were around the vicious and unfortunate consequences of the triple
19 Jan 2009 : Column 1527
The automotive sector is very important to UK manufacturing, as many speakers have made clear, with major inward investment from the global car companies that provided employment for 180,000 people in 2007, along with over 550,000 in the retail business and an estimated further 200,000-plus in the supply chain. It contributes £10 billion of added value to the UK economy, exporting £25 billion worth of vehicles and parts in 2007. The automotive sector was a significant part of the R&D sector, spending over £1.4 billion. Those numbers and many of the comments about how this industry has reformed and put itself into a position of international competitiveness challenge the final comments of the noble Lord about the failure of this Government to create an industry or support it into real health.
The issues with which we are dealing are the issues of today and of today’s markets. They are also the issues of simultaneous structural and cyclical change, which is a feature of many markets with which we are currently dealing. We are fortunate, as the noble Baroness, Lady Wall, made clear, to have six of the top 10 vehicle makers and 19 of the top 20 automotive parts makers with a manufacturing presence in the UK, and—we meet them daily and weekly—companies that wish to stay in the United Kingdom.
I recognise that the new car registration figures for 2008, which were published by the SMMT on 7 January, were disappointing, and that the trend seems likely to continue for the immediate future. I note the SMMT’s anticipation of a drop in sales from approximately 2.4 million cars in 2007 to approximately 1.7 million in 2009, although I think it is generally recognised in the car industry that 2007 was, as it was described to us, a bumper year. The bar may be set higher. Nevertheless, that is a significant drop.
This is not just a UK problem. While registrations in this country were 11 per cent lower than in 2007, they fell by 18 per cent in the United States of America and by 28 per cent in Spain. The shortfall in customers, in demand and perhaps in consumers’ views of the value and type of motor car that they wish to have is changing. It is very real and it is very widespread.
The declining demand and the reaction to the current economic climate have necessitated action by employers, as many speakers have made clear this evening. We saw this recently in the job losses that were announced at Nissan. Further difficult decisions will be necessary to secure future success. As my noble friend Lord Mandelson said, while current demand for cars is hit by the recession, demand at its levels in 2007 is unlikely to return for some years, if ever; so the industry as a whole will have to adapt, not only in Britain but in Europe and worldwide, to a somewhat more constrained and perhaps differently configured market. That will have implications for the size of the industry and its individual companies and whether they restructure and consolidate.
19 Jan 2009 : Column 1528
This feature of excess capacity is not unique to the automotive sector, as noble Lords know; it is common across many sectors that are facing simultaneous structural and cyclical decline. None the less, this is a sector with a strong future, and here in Britain we are determined to ensure that the car sector remains a permanent and important part of our manufacturing base.
We have been talking frequently and in much depth to the industry. My noble friend Lord Mandelson and Ian Pearson met the main automotive trade association and representatives of industry in late November to hear at first hand about the particular issues affecting the automotive sector. The key issue raised by the industry in meetings with us was the issue that was raised by most noble Lords this evening: namely, access to credit for companies for investment in new green products and greener manufacturing technologies for their supply chains and for consumers who wish to buy new types of cars.
The industry provided a variety of suggestions and further information, which we have been considering carefully. What have we done so far? In addition to the measures announced today by my colleague in another place, which are designed to ease liquidity and reduce the downside risk of insurance, and to schemes relating to asset purchases, there will, in answer to questions asked this evening, be greater clarity about how those will operate, provided through an exchange of letters between the Chancellor and the Governor of the Bank of England at the end of this month.
Moreover, my noble friend Lord Mandelson unveiled £22 billion of funding to unblock the credit markets, which will make it easier not only for small companies but for those with a turnover of up to £500 million to access credit. In answer to the question asked by my noble friend Lord Harrison, we anticipate that the automotive supply chain will benefit in particular from the working capital guarantee scheme. We have successfully lobbied for the European Investment Bank to double to €8 billion the support for investment in greener cars and manufacturing processes, although I register that that is not the €40 billion that the car industry requested, and we are pushing for the bank to speed up its processes.
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