House of Commons Business and Enterprise Committee The Automotive Industry in the UK Ninth Report of Session 2008–09 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 7 July 2009 HC 550 Published on 17 July 2009 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Business & Enterprise Committee The Business & Enterprise Committee was appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Business, Enterprise & Regulatory Reform. Current membership Peter Luff MP (Conservative, Mid Worcestershire) (Chairman) Mr Adrian Bailey MP (Labour, West Bromwich West) Roger Berry MP (Labour, Kingswood) Mr Brian Binley MP (Conservative, Northampton South) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mr Lindsay Hoyle MP (Labour, Chorley) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Anne Moffat MP (Labour, East Lothian) Mr Mark Oaten MP (Liberal Democrat, Winchester) Lembit Öpik MP (Liberal Democrat, Montgomeryshire) Mr Anthony Wright MP (Labour, Great Yarmouth) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via http://www.parliament.uk/parliamentary_committees Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at http://www.parliament.uk/bec Committee staff The current staff of the Committee are: Eve Samson (Clerk), Ben Williams (Second Clerk), Janna Jessee (Inquiry Manager), Louise Whitley (Inquiry Manager), Anita Fuki (Senior Committee Assistant), Eleanor Scarnell (Committee Assistant) and Jim Hudson (Committee Support Assistant). Contacts All correspondence should be addressed to the Clerks of the Business and Enterprise Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected] 1 Contents Report Page 1 Introduction 3 The current state of the United Kingdom automotive industry 4 The future of the industry 6 2 The Automotive Assistance Programme 8 Are the criteria right? 8 Other assistance 11 The scheme in practice 11 3 Other support for the automotive industry 15 Support for LDV 15 Scrappage Scheme 16 Automotive finance 16 Short time working and train to gain 17 4 Government support for the industry as a whole 21 Conclusions and recommendations 25 Formal Minutes 28 Witnesses 29 List of written evidence 30 List of Reports from the Committee during the current Parliament 31 3 1 Introduction 1. The Automotive Assistance Programme was launched on 27 January 2009, as an attempt to support the industry through the economic crisis. We announced our inquiry into the Automotive Assistance Programme (AAP) on 25 March 2009. We invited evidence on the following points: • the definition of ‘eligible companies’; • the application criteria for the types of projects that are covered by the AAP, including the focus on low-carbon projects; • whether the £5 million threshold excludes too many SMEs; • the criteria used for awarding loans/loans guarantees, and how this compares with the criteria used by the EIB; • the degree to which the award of support through this scheme has prevented, or is likely to prevent, companies from abandoning projects or moving them out of the United Kingdom; • whether other measures, such as scrappage or support for car finance companies, are required; and • any other views stakeholders think the Committee should be aware of. 2. Our intention was to hold a single session on the effectiveness of the programme itself. However, events have moved fast. Since we took our decision, the New Automotive Innovation and Growth Team (NAIGT) (an industry-led project facilitated by the Department for Business, Enterprise and Regulatory Reform) has presented its report on the future of the automotive industry in the UK.1 The proposed takeover of LDV has failed and the company has gone into administration. General Motors, which has two major plants and other facilities in the United Kingdom, has also gone into administration. In the light of this we extended our evidence taking, and widened the scope of our inquiry. 3. We took evidence from Professor Richard Parry-Jones CBE, the Chairman of NAIGT, to set a context for the inquiry. We then travelled to Birmingham where we saw Mr David Smith, Chief Executive, Jaguar Land Rover, Mr Paul Everitt, Chief Executive, of the Society of Motor Manufacturers and Traders (SMMT), Mr Graham Smith, Senior Vice President, External Affairs, Toyota Motor Europe, and Mr Paul Williams, Chief Executive of the Retail Motor Industry Federation. The next day we visited the North West Region where, in addition to visiting Leyland Trucks, we took formal evidence from Mrs Andrea Paver, 1 An Independent Report on the Future of the Automotive Industry in the UK, New Automotive Innovation and Growth Team, BERR, May 2009 (hereafter, NAIGT report) The New Automotive Innovation and Growth Team (NAIGT) was launched in April 2008 to facilitate the development of a collective strategic view from the automotive industry on the innovation and growth challenges that it faces in the period to 2025. It was an industry-led project facilitated by the Automotive Unit (AU) within the Department for Business, Enterprise and Regulatory Reform (BERR). The NAIGT’s work was being delivered through an industry-led Steering Group of senior industrialists, academics and financial analysts experienced in the automotive sector. http://www.berr.gov.uk/whatwedo/sectors/automotive/naigt/page45547.html 4 Managing Director and Mr Denis Culloty, Chief Engineer, of the company and Mr Steve Barfoot, United Kingdom Country Manager, PACCAR Finance International Limited (Leyland Trucks is part of the PACCAR Group). We also took evidence from Mr Chris Gately, Managing Director, Multipart, and Mr Mark Hughes, Executive Director, Economic Development, Northwest Development Agency. We concluded by taking evidence from Mr Dave Osborne, National Officer for Vehicle Building and Automotive and Mr Roger Maddison, National Officer for Motor Components, Unite the Union and the newly appointed Economic and Business Minister, Ian Lucas MP, accompanied by Ms Jane Whewell, Director, Automotive Sector, and Mr Ian Gregory, Director, Automotive Assistance, of the Department for Business, Innovation and Skills. We are grateful to all those who submitted written and oral evidence, and we are particularly grateful to the organisations which hosted visits or evidence taking away from Westminster. The current state of the UK automotive industry 4. The Government told us that the manufacturing part of the automotive industry directly employs around 180,000 people;2 the NAIGT report estimates that if a wider range of jobs are included the number directly supported by the automotive industry is around 384,000.3 The Retail Motor Industry Federation told us “The annual turnover of the United Kingdom retail motor industry is £14 billion and it employs 570,000 people in 70,000 businesses”.4 While jobs in motor retail or services will remain whatever kind of cars are sold, the NAIGT report suggests that 333,000 jobs will be at risk in future if manufacturing moves offshore. A large proportion of United Kingdom production is exported; for example, Toyota exports about 85% of its United Kingdom production, and Jaguar about 80% of its products.5 5. As the NAIGT report notes “the UK automotive manufacturing sector has moved further away from volume car production by indigenous companies, towards greater dependence on inward investors, and a bias towards luxury niche vehicles, together with engine manufacture”.6 Professor Parry-Jones told us: we make three million engines a year which is as good as you could ever hope for in any given country. Most of those are small engines for small cars and most of them are exported. On the vehicle assembly itself, […] Because of the historical problems I have described, we have kind of retreated to an assembler of global, mass-market vehicles and a developer of niche premium products such as Land Rover, Jaguar and Aston Martin.7 The United Kingdom has the second largest premium car industry in the world, after Germany.8 Scarcely any of the indigenous automotive manufacturers are not ultimately 2 Ev 64 [BERR] 3 NAIGT report, p 25 4 Ev 87 [RMIF] 5 Q 62 6 P 27 7 Q 3 8 Q 57 5 owned by companies based outside the United Kingdom. The Committee welcomes the contribution that these foreign-owned companies make to the United Kingdom economy and the United Kingdom automotive sector in particular. 6. The UK industry benefits from the presence of many international companies who have based major assembly plants in the United Kingdom. There is also an extensive supply industry. United Kingdom suppliers have the advantage of producing high quality products and being close to users. Multipart has a network of 900 suppliers in the United Kingdom.9 The challenge is to ensure that the country remains an attractive place for investment, and that the component supply chain remains strong enough to serve the vehicle assembly plants. As Mr Smith said: Manufacturing operations depend on large numbers of components. We have approximately 250 suppliers across Europe, a good number in the UK, and without that supply infrastructure, and, again, close to the manufacturing operations where logistics make sense, we would not be as successful and would not have the same capability and that is part of it.10 Our witnesses shared the NAIGT’s concern that the supply chain was “hollowing out” and that this was “probably the biggest single threat to the world class industry and the world class manufacturing operations that we have here at the vehicle assembly and engine manufacture level”.11 7.