Supply Chain Group Growing The UK Automotive Supply Chain

SMMT Open Forum September 2012 – Supply Chain Group Update:

Mike Mychajluk, Jaguar Land Rover Purchasing Manager

1 Supply Chain Group Introduction Horizontal & Vertical Cross Sector Engagement

BIS OLEV BMW Mini PA Consulting Group Brose Productiv Ltd Calsonic Kansei RBS Cambridge University Schaeffler (UK) Ltd Flambeau Europlast Sertec Group Holdings Ford Skills Funding Agency GKN Automotive SMMT GM UK SMMT Industry Forum Jaguar Land Rover Stadco Ltd JCB TATA Steel JLR TI Automotive Lear Toyota Leyland Trucks TRW MAS West Midlands TSB Acting Chairman : Dave Allen Michelin UK UKTI Purchasing Director Nissan ZF Lemforder UK with a lead for new technologies, strategy & government programmes Jaguar Land Rover Strategic Overview Workstream Positioning

UK Growth opportunity is the driving factor:  UK competitiveness in our sector  UK competiveness in related sectors

 Developing existing capacity/ capability Rebuilding the UK supply chain  Encouraging new investment

Work stream : Work stream : Close the Sourcing Gap Encourage New UK Entrants/Re- + ££ Develop existing UK entrants/expansion manufacturing capacity £ Investment

Work stream : Optimise UK Competitiveness

Work stream : Access to finance

Work stream : Component Survey Data & Intelligence UK Economic Overview

• Macro economic factors have shifted in the UK’s favour • Historic trends in UK vehicle manufacture have reversed – Many new vehicle projects have been announced • Much of the excess UK supply chain capacity has been used already, expansion is necessary for a competitive UK sector • Supply Chain investment is now required to support OEM growth. This will: – Protect immediate expansion plans of the UK OEM’s – Create long term critical mass in the UK Supply Chain – Create much needed UK employment opportunities – Support the UK’s Growth strategy

Inward investment will require incentives; expansion of indigenous suppliers will require access to capital

Favourable FX & commodities …but weakening economic outlook

Exchange Rate – GDP - 2010 vs 2012 Q2 USD/GBP

Budget 2012/13: $1.60

Spot: $1.5900

3 Month Aluminium - $ per Ton Volatile economic environment

UK – Economy shrank by 0.5% during Q2 as the double dip recession continues. The service sector is showing signs of recovery however, the construction and manufacturing sectors remain weak. Budget 2012/13: $2800 US – Economy grew by 1.7% in the second quarter. Economy remains sluggish with August experiencing falling exports and weak employment.

Europe – Moody downgrade Europe AAA rating to ‘negative’ due to the region debt exposure and negative outlook. ECB decision has renewed some confidence.

China – Manufacturing dipped to a nine month low in August with a PMI of 49 which indicates contraction, Fears still exist around a property bubble. Chinese banks are taking steps to boost lending

Spot: $1948 UK Automotive Sector is less reliant on EU market > 55% exported = Resilience 3 Strong UK Investment Continues RECENT JLR COMPANY HIGHLIGHTS INVESTMENT IN OPERATIONS AND RECRUITMENT

£2 billion investment in 2012/13

Significant investment in three UK manufacturing sites and further investment in new advanced engine facility

JLR has established the largest electric/hybrid engineering team in UK – approximately 240

More than 8000 recruited in the last 2 years – 336 Graduates and 104 advanced apprentices (level 3) taken on in 2011

JLR received a Corporate Responsibility Index Platinum Award (March 2012) JLR SUPPLIER BASE PURCHASING ACTIVITY

JLR will spend more than £9bn with its supply chain in 2012/13

JLR Global Supplier Spend £m 10000 9000 9600 8000

7000 106% 6000 5000 4000 4650 3000 2000 1000 0 2010 2012/13 Strategy Development – Workstreams Underway 5 priority areas have been identified All Optimise Interdependent competitiveness of UK Supply Chain

Close sourcing gap Access to Growth Tier 1 Finance Strategies for to Tier n UK Auto Supply Industry

Identify/ Encourage Advance new entrants Common / re-entrants Opportunities to UK

9 Common Opportunities

Critical Workstream Project OEM Commodity Survey 5 year demand forecast of UK based OEMs Survey now available via BIS.gov.uk

Identify/Advance Common Opportunities

10 Encourage New Entrants

Each OEM requested to provide priority commodity targets

Commodity Supplier A Supplier B Supplier C Supplier D

Castings Potential investors could be suppliers: Machining • with existing UK Operations – capacity expansion Plastic Mouldings • currently supplying UK OEMs from overseas Stampings • to OEM “A” willing to supply OEM “B” Sub-frames • new to UK OEMs, but supplying other divisions. Tyres • new to all UK based OEMs (India/China etc)

Glass etc UK FACES AN

URGENT “ONCE IN A LIFETIME” Encourage OPPORTUNITY new entrants / re-entrants to UK 11 Optimise competitiveness

Action plan

Competitiveness refers to: Cost; Accreditation; Management ; Processing capabilities; Quality; Logistics; Finances

Engagement with lower tiers is more difficult, Scope hard to quantify,

Must be well coordinated

Increase visibility – Achilles Automotive launch by JLR & AML of a web based supplier pre-qualification system due to expand in 2013 with more OEMs participating

Short term Actions: Secure funding from AMSCI (Cluster bids) - Construction Vehicles

- Niche Luxury Optimise competitiveness Many more individual automotive AMSCI bids of UK Supply Chain 12 Optimise competitiveness to lower tiers

Action plan

Medium term activity: • Understand learning from Cluster projects • Identify suppliers and establish an engagement strategy • Understand strategy and focus of : Reformed MAS Higher Apprenticeship Fund

SEMTA strategy

Long term activity

• Narrow and deep solution Close the sourcing gap • Study paper to be developed between Tier 1 and Tier n 13 Access to Finance

Defining the problem

Work Completed to date: • Workshop at BIS 26th March - Volume OEMs / T1’s / T2+ / Niche OEMs • Regional events led by JLR for Midlands banking sector • Key Findings: - Sector Image outdated - Formal relationships need re-establishing

- Perceived returns & Bank expectations - Scope of the problem - Tooling funding identified as specific sector issue Next steps:

Engagement at more senior level with UK Access to Clearing Banks followed by other Financial Finance Institutions with government support 14 Supplier Investment Funding De-risking Access to Automotive Finance

Create the right financial environment to take full advantage of growth opportunities in the UK Automotive Industry

• Banking • Government Communication Collaboration

Improve Secure Supply understanding Chain Funds for within Banking the UK Sector of Automotive Automotive Sector Growth Potential

Investigate Develop alternative alternative supply chain investment funds financing – non-bank, Address products – equity specific reverse factoring • Alternative • Supply Chain sector Funds Finance needs ie. Tooling Solution Development – Summary Momentum building on a complex project But A long way to go

within a Optimise potentially competitiveness of UK Supply short Chain Window of Opportunity Close sourcing gap Access to Growth Tier 1 Finance Strategies for to Tier n UK Auto Supply Industry

Identify/ Encourage Advance new entrants Common / re-entrants Opportunities to UK

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