UK Suppliers Benefit from Jaguar Land Rover Expansion 20-Apr-2015 12:27 GMT News

EDITORIAL – UK suppliers benefit from Jaguar Land Rover expansion 20-Apr-2015 12:27 GMT News

British-based suppliers awarded nearly USD6 billion in contracts from JLR

Jaguar Land Rover’s (JLR) announcement that it has awarded contracts worth USD5.89 billion is a sign that the country’s nascent supply base is starting to realise its growth potential. The announcement comes as JLR begins production of its Jaguar XE sedan at Solihull plant. The company invested GBP500 million (USD731.6 million) in a new facility, which also includes an aluminium body shop, at its Solihull plant to start production of Jaguar’s entry-level sedan. XE production involves GBP4 billion (USD5.89 billion) worth of contracts for 55 UK- based suppliers. These suppliers together account for 55% of XE parts. Ian Harnett, purchasing director at JLR, described the UK as having a “burgeoning, high-tech, highly skilled supply base”.

Jaguar suppliers in the United Kingdom have invested in ramping up capacity to supply new XE sedan. Yorkshire- based plastic supplier Rosti McKechine, for example, which secured a GBP75 million (USD109.7 million) contract for XE sedan, has invested GBP18 million (USD26.3 million) to install new robotic machinery at its plant. Automotive Insulation, which makes thermal and acoustic solutions at its plant in Rugby, Warwickshire, has expanded plant space by 65,000 square feet to accommodate its expanding workforce to supply Jaguar’s latest offering. Another UK-based supplier, Sertec Group, located in Birmingham, has invested GBP15 million (USD20.9 million) in new presses, robotics and site upgrade at its Tyseley plant, resulting in 107 new jobs.

This trend is set to continue for the company as it introduces its new Ingenium turbocharged gasoline (petrol) and diesel engine family into mass production. The company has invested GBP40 million (USD68.5 million) to expand and enhance its Powertrain Engineering facility at its Whitley Technical Centre (United Kingdom). The contracts for these and other parts may already be in place, but there will be a significant ramp-up of production for the new engine. Production of engines for JLR vehicles is forecast to go from 36,000 in its first year (2015) to over 540,000 units per annum by 2019 according to IHS Automotive forecast, or around three-quarters of its vehicle production at this point. The first vehicles will use the diesel version of this engine during 2015, with the gasoline engine joining the ranks the following year.

Although JLR has noted in the past that the engine will be a feature in the new XE mid-size sedan range, IHS Automotive expects it to also feature in many other new and updated Jaguars in future, including the XF, XJ and forthcoming crossovers. It will also be included in many of the new Land Rovers, including the replacement for the Freelander, the Discovery Sport.

The announcement could be interpreted as a sign that Jaguar Land Rover is expanding its operations in all areas of car development. The UK has traditionally a chronically underdeveloped supply base compared with its European counterparts. Previous estimates have suggested that around 30% of the parts in a typical UK-built car are sourced from UK suppliers. In Germany it’s closer to 60%. Jaguar Land Rover’s announcement that 55% of XE production

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Longer-term targets include adding 15,000 jobs in the next three years – twice the addition in the past three years – and ramping up new investment projects. The issue comes at a time when the United Kingdom is bucking the trend of low European growth with its own burgeoning production sites for Jaguar-Land Rover, Nissan, Toyota and Ford. IHS Automotive forecasts the UK production will reach 1.53m vehicles in 2013, compared with just over a million in 2009.

However the localised supply base in the region is still underdeveloped thanks to small and medium enterprises being unable to gain credit for basic but expensive items like tooling. Even for larger suppliers, these structurally related costs needed to increase production push down operating profit, increasing risk. The considerable fluctuations mean that if revenues fail to meet expectations in periods of high investment, tight margins for profitability could turn into losses.

The British government is eager to capitalise on the growth in the automotive sector, especially when set against the backdrop of a withering European market. This year has already seen a deal for a £1bn investment for a centre to promote engine research. Britain’s automotive industry has benefited from close state attention in recent years, part of a strategy to promote manufacturing and wean the economy off a reliance on financial services.

However there are obstacles. Automotive suppliers in Britain have suffered through a lack of financial support that rivals countries like Germany enjoy, and an acute skills shortage is cited by many as a growth constraint.