House of Commons Trade and Industry Committee Success and failure in the UK car manufacturing industry Fourth Report of Session 2006–07 Report, together with formal minutes, oral and written evidence Ordered by The House of Commons to be printed 13 March 2007 HC 399 Incorporating HC 1075-i, ii and iii (Session 2005-06) Published on 29 March 2007 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 Peter Luff MP (Conservative, Mid Worcestershire) (Chairman) Roger Berry MP (Labour, Kingswood) Mr Brian Binley MP (Conservative, Northampton South) Mr Peter Bone MP (Conservative, Wellingborough) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mrs Claire Curtis-Thomas MP (Labour, Crosby) Mr Lindsay Hoyle MP (Labour, Chorley) Mr Mark Hunter MP (Liberal Democrat, Cheadle) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Judy Mallaber MP (Labour, Amber Valley) Rob Marris MP (Labour, Wolverhampton South West) Anne Moffat MP (Labour, East Lothian) Mr Mike Weir MP (Scottish National Party, Angus) 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 www.publications.parliament.uk/pa/cm/cmstords.htm 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 Slater (Second Clerk), Robert Cope (Committee Specialist), Ian Townsend (Inquiry Manager), Clare Genis (Committee Assistant), Jim Hudson (Senior Office Clerk) and Joanne Larcombe (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 ‘Appendix’ followed by the Appendix number. 1 Contents Report Page 1 Introduction 3 2 The UK industry in its global context 5 The worldwide automotive industry 5 UK automotive industry 7 3 Factors affecting the future of individual plants 12 Plant flexibility 12 The supply chain 14 Labour and energy costs 16 Productivity, labour flexibility and skills 19 Other factors 22 The future of individual plants 22 4 Lessons from the MG Rover Task Force 24 Help to former employees 25 Help to former suppliers and retailers 26 Effect of the Task Force 27 Employment rates and quality of new jobs 27 Advice on benefits and jobseeking 28 Training 30 Lessons for the future 31 5 Future of the UK car manufacturing industry 34 Conclusions and recommendations 35 Formal minutes 39 List of witnesses 40 List of written evidence 40 List of unprinted written evidence 41 3 1 Introduction 1. Concerned at the collapse of the last UK-owned volume car maker, MG Rover, we launched an inquiry in January last year into the Government’s role in the attempts to sustain MG Rover, with a view to finding out whether any lessons could be drawn on how to help large manufacturing companies in difficulties in the future. During the course of our inquiry, PSA Peugeot-Citroën announced that it intended to close its plant at Ryton near Coventry;1 Vauxhall Motors, owned by General Motors, said that it was going to cut a shift at its factory at Ellesmere Port;2 and the owner of the niche carmaker TVR explained that he wished to move production from a factory at Blackpool to more modern premises.3 Much of the news about the UK automotive industry was bad, but we were aware that while some companies were closing their UK plants, others had a thriving manufacturing base in the UK, in which they continue to invest in manufacturing new models. For example, during the course of this inquiry, Honda at Swindon produced its new Civic, Nissan in Sunderland its new Qashqai, Land Rover its new Freelander at Halewood and Toyota at Burnaston its new Auris. 2. We were also conscious of the fact that our predecessors had published a wide-ranging Report on the state of the UK automotive industry in September 2004,4 and had followed this up with oral evidence on the closure of Jaguar’s Brown’s Lane plant in November of that year.5 We wished to test whether our predecessors’ main conclusions held good. These were as follows: “The UK is still a competitive place to make vehicles, but, regardless of this, individual plants may still close. However, the risk of this will be reduced, and the prospects of continued investment in the remaining plant will be maximised, if constraints on competitiveness are identified and minimised. Whilst the UK is acknowledged to be a good venue for automotive production, our witnesses identified a number of areas of concern in the course of our inquiry.”6 “It seems that UK production is unlikely to migrate to the [EU] accession countries in the short term. Car companies work on an international basis and have been investing heavily in the accession countries for some time so there seems little prospect of an immediate ‘shock’ to UK vehicle production. However, the recent investment in production capacity in the new EU members will inevitably intensify competition between EU members for future investment in manufacturing and 7 increase the competitive pressure on the UK.” 1 On 18 April 2006 2 In May 2006 3 In late April 2006, TVR has since (in December 2006) gone into receivership, but the former owner bought it back in February 2007. It is not clear whether production will resume in the UK or be moved abroad: see, for example, ‘Administrators sell TVR back to former owner’, Financial Times, 23 February 2007, p2 4 Eighth Report from the Trade and Industry Committee, Session 2003-04, UK Automotive Industry in 2004, HC 437 (hereafter ‘Eighth Report’) 5 Published as ‘Midlands car industry’, oral evidence taken on 2 and 17 November 2004, HC 1224-i and ii 6 Eighth Report, paragraph 22 7 Ibid., paragraph 61 4 “Unless the UK is seen to have solved the basic skills problem rapidly, the comparative advantage enjoyed by our competitors may be a significant factor in decisions by companies on where to locate production.”8 “Research and Development is fundamental to the continued success of the UK automotive sector, but we heard concerns that the UK is falling behind its competitors.”9 3. We therefore decided to widen and change the emphasis of our inquiry to cover the reasons for success and failure in the UK automotive sector. On 9 May 2006, we asked for evidence on: — the principal reasons for the different records of success; — how companies arrived at investment and closure decisions in this country and abroad; — the role played by trade unions in the industry; — the appropriate response of Government to closure announcements or speculation; and — (building on the evidence we had already received on the effectiveness of the recovery package and Task Force for the MG Rover workforce and the West Midlands more generally after the company went into receivership)10 what the Government could do to help the workforce and the supply chain if plants closed. 4. We took oral evidence from two companies, General Motors (‘GM’) (Vauxhall/Opel) and PSA Peugeot-Citroën (‘PSA’); from two trade unions, the Transport and General Workers’ Union (‘T&G’) and Amicus; and from Mr Richard Burden, MP, who represents Northfield, the part of Birmingham where a large proportion of the MG Rover workforce lived, and who was a member of the MG Rover Task Force set up to deal with the consequences of the closure of the Longbridge plant. We received Memoranda from 21 organisations, companies and individuals, most of which are printed with this Report. We are grateful to all those who submitted written and oral evidence to us. 8 Ibid., paragraph 29 9 Ibid., p31 10 For which see Chapter 4 below 5 2 The UK industry in its global context The worldwide automotive industry 5. Our predecessors were told in 2004 that, even with the growth in demand from India and China, the automotive industry was facing overcapacity worldwide.11 Most of our witnesses accepted this analysis: the T&G stated that the industry was able to produce about 60 million vehicles per year worldwide, whereas 40 million were sold.12 Amicus demurred from the consensus, but only on the basis that, if people in developing countries were richer, there would be much higher demand13—which may be true but does not reduce the industry’s difficulties. It was also broadly accepted that the rise of China and India as manufacturing bases and the expansion of the European Union to Central and Eastern Europe had fundamentally changed the economics of the automotive industry.14 6. While car manufacture is a global industry, automotive companies operate largely in terms of broad regions (such as ‘Europe’ or ‘Asia-Pacific’) regarding both production and markets.15 The definition of regions may vary from company to company. For example, we have discovered during our inquiry into trade and investment opportunities with Mercosur that companies have different views of whether there is a ‘Latin American’ market and, if so, which countries comprise it.