Select Committee on Trade and Industry Third Report


II RECENT EVENTS

Ford at Dagenham

May 2000 announcements

  10. On 12 May 2000 Ford made public the long-awaited results of their European restructuring review. The principal result of the review was the decision to end car production at their Dagenham plant, with effect from early 2002. The closure was also announced at the same time of Ford's small plants in Poland and Belarus, and the sale of a plant in Portugal. Ford's plants on the continent have experienced reductions in the past few years, notably the ending of the Scorpio line at Cologne, leading to 1500 job losses, and reductions in volumes at Genk in Belgium, leading to 1700 job losses. But the axing of car production at Dagenham was unquestionably the major outcome of Ford's restructuring.

Employees

  11. The vehicle assembly section of the Ford Dagenham plant was at the time of the announcement producing around 190,000 Fiestas on two shifts, employing over 3,000 people. Public and private assurances had been given in recent years that Dagenham would build the successor to the Fiesta which was to be introduced in 2002. It was announced in February 2000 that the plant would be moving to one shift from August 2000. This implied the loss of around 1,400 jobs, but with the prospect of their restoration following the introduction of the new Fiesta. The May 2000 announcement meant a further 1,900 job losses, only slightly balanced by the prospect of 500 new jobs at the diesel engine plant. Since then we understand that around 300 employees have indeed transferred from the car plant to the engine plant. Some jobs in the Press Shop vacated by early retirement on special terms have been filled from car plant employees. Some additional jobs at the Southampton Transit plant have also been offered to Dagenham car plant employees. These measures can only marginally soften the blow to individual employees and to the local and regional economy.

Rationale

  12. Ford's May 2000 announcement referred to the company's loss of market share, and to the gap between their current European sales of around 1.65 million vehicles, and European production capacity of 2.2 million. Even in the medium term, Ford does not expect to sell more than 2 million cars a year in Europe. The company concluded that it had, quite simply, one too many plant. The losses announced by Ford UK a few days later were also later cited as a reason for the decision, although it is noteworthy that over the past decade the company has hardly ever recorded a profit in the UK. The Fiesta sells well and continues to be the best-selling car in its segment of the market in the UK .

Suppliers

  13. The end of vehicle assembly at Dagenham will obviously have a serious effect on Ford's suppliers. It was suggested in evidence to the GLA that it would be rendered less significant because "the number of vehicles that would have been built will continue to be built". Larger global companies can compete to supply the Cologne plant as they would have done to supply Dagenham. That will be of little comfort to their UK employees who may find that production is transferred to Germany. Smaller companies and those manufacturing bulkier and less movable components will be badly affected by the loss of business in the UK. We understand that the GLA Economic Development Committee commissioned a study into the regional and local impact of the decision.

Why Dagenham?

  14. Ford's immediate choice of sites to close was probably between Cologne and Dagenham. There was not much to choose between the two sites. Dagenham was seen by Ford as a relatively old and inflexible plant, although there has been substantial investment there by Ford in recent years. It is physically constrained in an awkward site. Its past history of industrial relations has been troubled, with allegations of absenteeism. It has gained recent unfavourable publicity with allegations of racism. Mr Ian McAllister, the Chairman and Managing Director, told the GLA in July 2000 that "it has been the least effective plant that we have in our European operations".[7] But all this was known for some years. It did not prevent Ford management agreeing to introduce the new Fiesta there. Practical considerations may have weighed more heavily in the balance in an economic environment of falling market share and losses. It is, however, hardly surprising that a number of those we spoke to felt that Dagenham had been selected for closure in preference to sites in Belgium or Germany because of the relative weakness of the UK's labour protection laws.

Engine plant

  15. Ford emphasised in their May announcement and in evidence to us and discussion with us the bright future for the Dagenham diesel engine plant. The engine plant currently employs around 1,800 people and produces around 600,000 engines a year, mainly the 1.8 Lynx engine for the Mondeo and other cars and the 2.0 and 2.4 Puma engines for the new Ford Transit. It will also be producing engines in a new cooperative venture with Peugeot. Much emphasis was laid by Ford at the time of the May announcement on the prospect of increasing the capacity, range and output of the plant over the next three years, with the attendant creation of additional employment. In October 2000 Ford announced their plans for the construction on the site of the former foundry of the new "Clean Room" Assembly Hall, bringing Dagenham's potential capacity up to around 900,000 engines a year. Furthermore, the wheel plant and the press, both of which we saw on our visit in May, are to be modernised at considerable expense. 240 diesel powertrain engineers are to move from Dunton to Dagenham to lend some substance to the promised centre of excellence in diesel engine technology and production.

Vauxhall at Luton

Vectra before 1998

  16. In 1995 production began at Vauxhall's plant at Luton, Bedfordshire, of the Vectra as a replacement for the successful Cavalier. The car was also assembled at the General Motors plants at Russelsheim near Frankfurt, and at Antwerp. Russelsheim also builds the Omega; Antwerp also builds the Astra. Production of the Japanese designed Frontera sports vehicle replaced the Midi and Rascal vans in the separate facility next to Vauxhall's Luton site, operated by the General Motors subsidiary IBC.[8]

1998 Agreement

  17. By 1997-98 it had become clear that sales of the Vectra were not meeting expectations. General Motors Europe (GME) reviewed their Vectra production capabilities. It was plain that two rather than three production centres were required.[9] In 1998 Vauxhall negotiated a new three-year pay and productivity agreement with the unions as a means of keeping the Vectra line at Luton and of ensuring that Luton would be one of the two production sites for the new Vectra — code-named "Epsilon". We understand that production levels of around 450,000 a year were envisaged, divided more or less equally between Luton and Russelsheim. As part of the negotiations with the trades unions which led to this April 1998 Wages and Conditions Agreement, Vauxhall agreed in terms that "there will be a replacement model for the Vectra at Luton with consequent investment at 45 jph [jobs per hour] capacity".[10] We understand that the idea at the time was that this volume would be divided between the new Vectra and the Corsa. A Corsa assembly line would have made Luton a "flex plant", safeguarding its future.[11] In the event, the additional Corsa capacity was not required. The Agreement also covered an eventual successor to the Astra, which had at that time been brought into production at Vauxhall's other UK car plant at Ellesmere Port in Cheshire.[12]

18. Under the 1998 Agreement, the trades unions accepted a substantially lower pay increase than they told us they would otherwise have been seeking, over a three year period; lower rates of starting pay and shorter holiday entitlement for new workers; a taper on productivity payments; and continuation in force of the July 1997 Luton Plant Flexibility Agreement.[13] The company committed itself to talks with the trades unions in the event of "exceptionally adverse changes to the economic environment which forces a reconsideration of the plan", and to avoiding enforced redundancies. The deal was sold to the workforce by union leaders and others — in the face, as we were told, of some hostility — on the basis that it would safeguard the future of the plant. In evidence to us in June 2000 Mr Reilly, the Chairman and Managing Director of Vauxhall, praised these arrangements as an example of the commendably flexible approach shown by the UK workforce in vehicle manufacturing.[14]

19. The Agreement is a "labour agreement" and is apparently not legally binding, although that may be tested in the courts.[15] Mr Reilly told us that it had been entered into in good faith, but " unfortunately, there is never a guarantee in this world...". He did not in any event regard the agreement as having been broken, and suggested that even if it had had legal force, Vauxhall would have been able to rely on the clause allowing for reconsideration in the event of exceptionally adverse economic changes.[16] The unions emphasised that their interpretation of the clause allowing reconsideration was different; besides, the consultation explicitly referred to in that let-out clause had simply not happened. They had been faced on 12 December 2000 with a fait accompli. If such an Agreement were to be made legally binding, it would of course impose equal obligations on both parties and an equal liability to pay damages if the agreement were broken.

1998 to date

  20. In large measure as a result of the 1998 Agreement, GME took Vectra production out of Antwerp and increased production volumes at Luton.[17] From 1998 to date, Luton has been building Vectra estates and hatchbacks, and Russelsheim Vectra saloons and hatchbacks. Luton built 155,000 Vectras in 1998; 146,000 in 1999; and around 125,000 in 2000, all on two shifts. The maximum capacity of the plant has been around 215,000 through those three years, based on three shifts and on capacity constraints such as the paintshop.

21. On 4 May 2000 Vauxhall announced that —

  • million would be invested in the Luton plant in order to make structural changes at the plant, primarily the reduction from four to two in the number of floors used for assembly.

  • Frontera production would be transferred to Ellesmere Port, at a cost of £27 million, aided by a £5 million grant of Regional Selective Assistance, to provide space for IBC to assemble the new Vivaro van to be produced in a joint venture with Renault. Fronteras were to be produced at Ellesmere Port from spring 2001. Mr Reilly told us in June 2000 that this move had been won against competition from other possible sites, including Finland and Turkey.[18]

  • million would be invested in the IBC plant for Vivaro production, with production by mid 2001 of "in excess of 80,000" vans a year, on three shifts. The van was to be launched in spring 2001.

Planned introduction of new Vectra

  22. The planned reorganisation of the Vectra plant ahead of the introduction of the new Vectra, known internally as Project Enable, went ahead from mid-2000, at a cost informally reported to us of around £230 million. These plans involved a great deal of adaptation of the existing production layout for the Vectra, so as to ensure introduction of the new model in early 2002 with minimum interruption to existing production. On our tour of the Vectra line we were able to see for ourselves the scale of the operation. We understand that no Government assistance was sought for this programme, despite Luton having recently qualified as an Assisted Area. That is presumably because there was at that time no question of the investment going anywhere else.

23. The process of adaption became easier as the year went on as a result of gradually reducing Vectra production in response to falling sales. By the second half of 2000 the plant was said to be working at 3½ or 4 days per week. We understand that the majority of the intended expenditure on Project Enable had already been committed by the middle of December 2000. Many of the component supply contracts for the Epsilon had been agreed. Mr Reilly told us in January that " the sourcing for the [new] Vectra has obviously largely been done...".[19] Over 600 contractors' staff were ready to move in over the Christmas 2000 shutdown to carry out a range of preparatory works. Of the two suppliers we met informally in January, one had had a contract from August 2000 and the other had been weeks if not days away from a firm contract at the time of the December announcement. There is no suggestion that the 12 December decision was other than a total surprise to Vauxhall's Luton management and workforce, and to their suppliers.

24. In June 2000 Mr Reilly had reassured us in oral evidence that Epsilon production was indeed coming to Luton (as well as to Germany).[20] He did not and could not have given any guarantees. We have no doubt that the confidence he expressed at that time on the robustness of the decision taken in 1998 was entirely genuine. The same is true of his informal discussions with those Members of the Committee who visited Ellesmere Port on 9 October 2000.

Autumn 2000

  25. At some point in October 2000, the third quarter [July-September 2000] European trading losses of $181 million must have become known to the GME Board, and to the main GM Board in Detroit. GME apparently reviewed the options open to them, including the closure of a complete plant. In response, Mr Reilly developed plans to move people from the Vauxhall Luton plant "through the fence" to the neighbouring IBC plant, and for a introduction of single shift working at the Vauxhall plant.[21]

26. In early November 2000, Mr Reilly communicated the options under consideration to DTI officials.[22] At a meeting on 2 November 2000, these options were also communicated to national trades unions' officers, with a warning that "the hawks were out".[23] Vauxhall's Director of Personnel told us that " throughout the month of November we had been in intensive consultations talking about options to try to deal with the situation...".[24] Mr Reilly was confident that he had persuaded his colleagues on the GME Board to choose these painful but less radical options, and preparatory steps were under way for their implementation.[25] The trades unions' officials do not suggest that he had been other than open with them.[26]

27. By early December 2000, GM evidently became aware that the fourth quarter losses would be worse still, leading to the view that "GM Europe had gone from a state of needing two Vectra plants to needing effectively one and a half, or one plus a flex-plant".[27] The subsequent GM Press Release of 12 December 2000 referred to "lower than expected sales volume coupled with increasing price pressure in key European markets such as Germany" as resulting in GME "experiencing significantly greater losses than in the third quarter of this year". The GME Press Release warned that "a much larger loss is expected for the 4th quarter".[28] Newspaper reports suggested a loss of at least $300 million. In fact they were around $460 million.

12 December 2000

  28. Following discussions in early December 2000, the GME Board made its decisions on Friday 8 December 2000.[29] They were announced in Detroit on Tuesday 12 December 2000, as part of a global series of cutbacks, including the closure or radical reduction of several US plants and the termination of the Oldsmobile brand, with the loss of around 4,000 jobs in the US.

29. In Europe, capacity at the giant Russelsheim plant is to be reduced from 470,000 to 270,000,[30] as well as undergoing "a previously announced "leanfield" conversion". It was announced that Opel would "discontinue plans for the introduction of an Omega V8 version". Mr Reilly told us that the reduction in capacity at Russelsheim was comparable to that at Luton, and that the number of job losses would be greater,[31] but the plant is not to close. It is planned to build 173,000 new Vectras there in 2002, rising to 264,000 in 2003.[32] Small plants were closed in Poland and Turkey. The GM Press Release referred to a reduction in GME's total installed capacity of "more than 400,000 units" by 2004 and a reduction in total employment levels of 5,000 within the next 12-18 months. GM Europe are to shed 10% of its salaried staff in 2001. In response to our request, we were provided with a detailed schedule of the impact throughout Europe of the December 2000 plans.[33] It is evident that General Motors are indeed engaged in cutting back capacity and numbers employed in Germany as well as at Luton.1,000 people are to lose their jobs at Bochum in addition to the cuts at Russelsheim.

30. GM announced that production of the Vectra at Luton would move to one shift early in 2001 "and would cease at the end of the life of the current Vectra model, which will be by the end of the first quarter of 2002". Although nowhere explicitly stated, this announcement inevitably revealed that the new Vectra would not after all be produced at Luton. The Press releases from GME in Zurich and Vauxhall in the UK stated that the Frontera would continue to be constructed at Luton, and emphasised the plans for Vivaro van production.

31. The Secretary of State made an oral statement to the House of Commons the next day, 13 December 2000.[34] He described the decision on Luton as a "bitter blow", while emphasising that the announcement had been part of an overall restructuring by General Motors. Five minutes after Vauxhall's announcement,[35] the DTI and DfEE set out what is by now the sadly familiar remedial package of assistance from the Employment Service and a local partnership — the Vauxhall Luton Partnership — comprising the regional and local authorities and others.


7  Transcript of GLA hearing, p 21 Back

8  GM bought out Isuzu's share in IBC (Isuzu Bedford Corporation) in 1998 Back

9  Q 82 Back

10  Ev, p 135 Back

11  Q 247 Back

12  Qq 381,395 Back

13  Q 395 Back

14  Q 83 Back

15  Qq 266ff; Qq 388, 395; also Q 198 Back

16  Qq 264-271, 282 Back

17  Q 130 Back

18  Q 135; Q 350 for grant Back

19  Q 320 Back

20  Q 125 Back

21  Qq 249, 253 Back

22  Q 275 Back

23  Qq 385,412 Back

24  Q 284 Back

25  Q 249 Back

26  Qq 382ff; 397; 413-4 Back

27  Q 249 Back

28  See also Q 256 Back

29  Qq 272-4 Back

30  Qq 331-335, 355, 359 Back

31  Qq 293,296 Back

32  Q 363 and Ev, p 138, A 5 Back

33  Ev, p 136 Back

34  HC Deb, 13 Dec 00, cols 641-656 Back

35  ibid, col 651 Back


 
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Prepared 8 February 2001