UK Automotive Industry in 2004
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House of Commons Trade and Industry Committee UK Automotive Industry in 2004 Eighth Report of Session 2003–04 Report, together with formal minutes, oral and written evidence Ordered by The House of Commons to be printed 20 July 2004 HC 437 Published on 9 September 2004 by authority of the House of Commons London: The Stationery Office Limited £20.00 The Trade and Industry Committee The Trade and Industry Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Trade and Industry. Current membership Mr Martin O’Neill MP (Labour, Ochil) (Chairman) Mr Roger Berry MP (Labour, Kingswood) Richard Burden MP (Labour, Birmingham Northfield) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mr Jonathan Djanogly MP (Conservative, Huntingdon) Mr Nigel Evans MP (Conservative, Ribble Valley) Mr Lindsay Hoyle MP (Labour, Chorley) Mr Andrew Lansley MP (Conservative, Cambridgeshire South) Judy Mallaber MP (Labour, Amber Valley) Linda Perham MP (Labour, Ilford North) Sir Robert Smith MP (Liberal Democrat, West Aberdeenshire and Kincardine) 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 www.parliament.uk. 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/parliamentary_committees/trade_and_industry.cfm. Committee staff The current staff of the Committee are Elizabeth Flood (Clerk), David Lees (Second Clerk), Philip Larkin (Committee Specialist), Grahame Allen (Inquiry Manager), Clare Genis (Committee Assistant) and Sandra Thomas (Secretary). Contacts All correspondence should be addressed to the Clerks of the Trade and Industry 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]. Footnotes In the footnotes of this Report, references to oral evidence are indicated by ’Q’ followed by the question number. References to written evidence are indicated in the form ‘APP’ followed by the Appendix number. 1 Contents Report Page Summary 3 1 Introduction 5 The Global Automotive Industry 5 The UK Automotive Industry 6 2 UK Vehicle Production 8 3 Skills 12 4 The Supply Chain 14 5 Europe and the Euro 18 The Euro 18 EU Expansion 20 6 Vehicle Sales and Servicing 22 Sales 22 Servicing 23 7 Government Support 26 Research & Development 26 Regulation 27 Conclusions and recommendations 30 Formal Minutes 35 Tuesday 20 July 2004 35 Witnesses 36 List of Written Evidence 37 List of Unprinted Written Evidence 38 3 Summary The global automotive industry is dominated by a small number of very large vehicle producers who operate throughout the world. Competition is intense as established markets are nearing their limits for future growth, and as a result of significant global overcapacity. This competitive environment has led to pressure to constantly strive for innovation and efficiency in products and manufacturing. Despite a number of high profile plant closures, the UK retains a successful automotive industry, with most of the largest vehicle and component manufacturers having some sort of presence here. The UK also has an established reputation for specialist engineering and design. The UK is home to some of the most productive vehicle manufacturing plants in Europe. However, this solid base may not secure all plants from closure: in the current climate, individual plant can be vulnerable to closure as companies restructure their production across Europe. Furthermore, the recent expansion of the EU has intensified the competition for future investment. In order to stand the best chance of retaining as much automotive production as possible in the UK there are areas that need to be addressed. It seems that the UK is behind some of its competitors in the skills of its workforce, particularly amongst components producers. R&D is another area where the record of companies in the UK is not good enough. With the increasing technological sophistication of the industry, and the constant pressure to innovate and improve performance, both R&D and skills are vital and the UK cannot afford to lag in these areas. The industry also considers that the fact that the UK has not adopted the Euro has disadvantaged producers based here. Despite changes to the block exemption agreement, we are not convinced that consumers in the UK are getting a good deal in purchasing new cars or in servicing. Retailers selling vehicles to individual consumers do not enjoy the same generous wholesale discounts as fleet purchasers, so their margins are tight with little scope to offer deals. Consumers are also paying too much for car repair and servicing, where competition is being constrained and minimum standards are lacking. 5 1 Introduction The Global Automotive Industry 1. The automotive industry is characterised by ruthless competition in a market dominated by global conglomerates. The traditional car markets of the USA and Western Europe are now reaching their limits for expansion, so future sales growth in them is dependent on the manufacturers’ ability to secure a greater share of the market for replacement vehicles than their competitors. This competitive pressure is compounded by the problem of excess global production capacity—in 2000 PricewaterhouseCoopers estimated that this was equal to 24 million units, or the equivalent of 96 modern assembly plants.1 2. Manufacturers have responded to this intensely competitive environment by constantly searching for ways to cut costs and increase efficiency: “If you look at every major vehicle manufacturer operating globally, in the course of the last two or three years each of them has announced and re-announced cost-reduction programmes”.2 This has also meant that they have required their suppliers to strive for efficiency and savings in a similar fashion as the competitive pressure is passed down the supply chain into the components industry. 3. Consolidation in car production is evident. An industry where a few giants dominate— more than 80% of world car production is accounted for by just six global groups3—is likely to concentrate further in coming years, with mergers between big vehicle producers “part of the new scenery”.4 This consolidation is also being seen in the components industry. PwC predicted that, by 2010, there would be only 20 or 30 major systems suppliers operating globally.5 In addition to this, there are examples of collaboration between even the biggest firms; joint ventures are increasingly common as companies seek to spread the high cost of R&D.6 4. Whilst this pressure has resulted in a difficult climate for those involved in vehicle production, it has also had benefits. The intensely competitive nature of the industry and the constant drive for efficiency improvements has meant that the industry is at the forefront of development of new production techniques which are then adopted in other sectors. The search for a competitive edge is resulting in better value vehicles being produced. As Professor Rhys notes, this does not merely mean the efficient production of competitively priced, functional, but ultimately uninteresting products. Instead, innovative design is needed as well as efficient production in order to succeed in the current market: “competitiveness on the supply side of the equation is of little use, if unattractive and bland cars are the result. This is the lesson the Japanese are having to learn: quality of build and 1 PricewaterhouseCoopers, The Second Automotive Century (2000), p.11 2 Q 32 (SMMT) 3 Automotive Innovation & Growth Team (‘AIGT’), Executive Summary, DTI (May 2002), p.13. The AIGT was an initiative that brought representatives from industry, government, academia, trade associations, unions and others with interests and expertise in the sector to identify ways of strengthening all aspect of the automotive production in the UK. It reported in May 2002. 4 PricewaterhouseCoopers, The Second Automotive Century (2000), p.14 5 Ibid., p.15 6 Qq 116 (Toyota) and 295 (Ford) 6 outstanding production per man is of little consequence if the cars are poorly received”.7 Moreover, recently, car prices in the UK have fallen to bring them more into line with the rest of Europe.8 These factors have contributed to a thriving market for cars in the UK. The UK Automotive Industry 5. Our predecessor Committee looked at vehicle manufacturing in the UK following the announcements that two of the largest automotive plants, GM’s factory at Luton and Ford’s at Dagenham, were to end vehicle production, and in the wake of BMW’s decision to dispose of Rover Group. It noted in its Report that “[i]t is over a quarter of a century since the UK vehicle industry faced a similar sense of crisis”9 and that “[t]he UK vehicle manufacturing industry is seen by some as in the midst of a crisis which could lead to the meltdown of a significant part of the UK’s manufacturing base”.10 6. In spite of these fears, the UK retains significant automotive production and is home to some of the most efficient vehicle assembly plants in Europe.11 13 of the largest global vehicle producers have some form of manufacturing presence here, as do 17 of the world’s 20 leading ‘tier 1’ component suppliers.12 There are also nine commercial vehicle plants, numerous internationally renowned design engineering firms, a significant motor sport industry, and a number of small, niche market vehicle producers.13 Approximately 1.65 million vehicles were produced in the UK in 2003, about 3% of global production or 9% of European production. This ranks the UK ninth in the world and fourth in Europe in terms of vehicles produced.14 7.