Select Committee on Trade and Industry Third Report



  32. The immediate effect of the decision is to threaten the jobs of the 2,860 hourly paid workers and 340 salaried staff at Luton. The move down to one shift means the potential loss of some jobs in the immediate future. Many of the rest face redundancy or early retirement in early 2002. Vauxhall are proposing a "separation programme" with enhanced terms, which may be offered to IBC employees as well if the numbers of Vauxhall workers wishing to stay in employment exceeds the jobs available. It is their "real intent and hope" to do it without enforced redundancies.[36]

33. The terms on which employees have been offered redundancy are more generous than the statutory minima. Mr Reilly was unable on 11 January 2001 to assure us that they would be no worse than those offered in equivalent circumstances to employees in Germany or Belgium. He emphasised that the terms were "a considerable enhancement on the normal package".[37] In accordance with our request, Vauxhall forwarded details of their proposed separation terms.[38] In the absence of comparative figures we are unable to confirm that the terms are comparable to those to be offered to employees in a similar position in Germany or Belgium. The employment laws in those countries seem to offer workers' representatives a greater opportunity to negotiate the terms of separation.

34. Some emphasis has been placed on the prospect of equivalent jobs in Vivaro van production on the adjoining IBC site. A total of around 2,000 people may be required there once the van is in full 3 shift production, producing around 80,000 vans a year.[39] The number of such jobs potentially available for those seeking to transfer from Vauxhall is diminished by the numbers of IBC employees transferring from the shrinking Frontera line. There may as a result be around 1000 jobs for Vauxhall employees at IBC.[40]

35. Vauxhall and IBC employees have different terms and conditions. In the course of our informal discussions, we were given some figures on the different wage rates and other conditions as between Vauxhall and IBC. IBC pay a higher basic hourly rate and have a shorter week, but with lower productivity payments and shorter holidays.[41]

Van production

  36. The announcement has no direct effect on the plans, now very well advanced, for the production of the Vivaro van at the IBC plant. On 13 December 2000 the Secretary of State expressed his confidence that GM would remain true to their plans for van production at Luton.[42] The van, which has already had its pre-launch, is to be sourced from almost exclusively EU but predominantly non-UK components, including Renault engines and transmissions. IBC are unable to produce the high-roof van and have a volume capacity of 86,000. Renault are said to be considering using Nissan's Barcelona plant.[43] IBC will make some left hand drive models and expects to export a substantial minority of production.


  37. Frontera production will remain at the IBC works rather than going as planned to Ellesmere Port. It is planned to move from two shifts to one, halving output from around 35,000 to 18,000, and reducing the numbers employed from around 1,600 to around 700. Frontera sales are falling, although not apparently its market share. There are also manufacturing constraints; capacity at the IBC paint shop is to be primarily devoted to the van. The Frontera will probably undergo final assembly and trim in the Vauxhall plant, since the IBC plant will have no space. We were told that the future rate of Frontera production was insufficient to justify using the Vauxhall paintshop in the same plant.

38. The reduction in Frontera production means that 700/800 IBC employees will be transferring to van production. The effect on the UK components industry of the diminishing number of Fronteras to be produced is slight, as much of the content is US or Japanese. The feasibility of producing a vehicle in such small quantities in what will again be a commercial vehicle plant must, however, be questionable. There are at present no plans for a successor; the chances of the IBC plant producing any successor are inevitably very slight. It is no doubt better to have retained production of the Frontera in the UK than to have lost it altogether. We cannot tell if its transfer to Ellesmere Port would have materially altered its prospects.

Ellesmere Port

  39. The threatened ending of car production at Luton is bound to have some effect on the future of Ellesmere Port, the principal remaining site of Vauxhall operations in the UK.[44] The GME 12 December Press release states that "Ellesmere Port will continue to produce the Astra", but makes no reference to the Astra replacement. In the aftermath of the 12 December announcement, Mr Reilly was quoted as giving assurances that the replacement Astra would be assembled at Ellesmere Port. In evidence to us on 11 January 2001 he emphasised " It is still intended to replace the Astra at Ellesmere Port ...".[45] GM executives at the January 2001 Detroit Motor Show were also reported as having expressed their commitment to Ellesmere Port. The future of the Ellesmere Port plant largely depends on the successor to the Astra being assembled there, from 2003/2004 onwards. An undertaking that this would be the case was included in the 1998 Agreement with the trades unions. The worthlessness of such an undertaking is now all too apparent.

40. GME may feel that it is open to do to Ellesmere Port what they are proposing to do to Luton, and that it will be easier to close Ellesmere Port than comparable plants in Germany, should similar circumstances arise for the Astra model in a few years time. A plant with only one model, on the geographic edge of the European market, and in a country whose labour laws make closure potentially easier and cheaper than elsewhere in the EU, would obviously be vulnerable to the "hawks".

41. On 13 December 2000 the Secretary of State told the House that —

    "I am sure we are all pleased that Ellesmere Port at least has not been affected by yesterday's announcement. We must find ways of strengthening the plant's position, so that it can go from strength to strength in the future".[46]

The immediate means of helping to strengthen the plant's future is to bolster it with a second model. In December 2000, Mr Reilly apparently secured the agreement of GME to consider a "bid" by Ellesmere Port to build any remaining new Vectra volume required beyond that allocated to Russelsheim, as a flex-plant. "A study is being made to possibly incorporate the next-generation Vectra and turn the facility into a two-model flex plant".[47] In oral evidence to us on 11 January 2001, Mr Reilly suggested that this could be as many as 160/180,000.[48] Subsequent written evidence corrected this figure to around 100,000 in the first year (2002), rising to a potential 160,000.[49] A fair portion of the investment in tooling etc at Luton could be moved to Ellesmere Port — or another plant — in preparation for this role.[50] Having such a new Vectra line could absorb some of the people from the third Astra shift, which under the May 2000 plans was to have been moved to Frontera production.[51] If it is indeed intended to produce as many as 160,000 new Vectras at a flex plant, it calls into question the rationale given for the closure of Luton.

42. The other GME plant with spare capacity which might be considered as a flex plant for the new Vectra is Antwerp. Vauxhall told us that it would be about £14 million cheaper to place it there.[52] Mr Reilly confirmed in evidence to us that Vauxhall was in discussion with the DTI on the possibility of Regional Selective Assistance to help bridge this gap. It would seem that Vauxhall are seeking something between the £5 million offered for moving the Frontera line to Ellesmere Port and the full £14 million.[53] Any grant would have to be notified to the European Commission, who would have to be satisfied that Antwerp was a genuine and cheaper option. As we know from past experience, these matters can take time. A decision from GME on whether to have a flex plant for the Epsilon, and if so where, is expected in the second half of February.[54] It is crucially important that the DTI and the Government's representatives in Brussels do all they can to ensure both a swift and a favourable decision on the proposed RSA grant: and that the Government make every effort to assist the eventual production of the new Vectra at Ellesmere Port.


  43. The Vectra has around 60% UK content. The new Vectra, if built in Luton, was to have had around 50% UK content. The V6 petrol engine came from Ellesmere Port, which will also supply Russelsheim. Other engines for the Vectra came from GM plants in Germany and Austria. Some of the pressings were apparently also imported. These factors may limit the collateral damage suffered by UK suppliers. Those companies supplying the Vectra line and even more those hoping to supply components to the new Vectra, many of whom had we understand already signed contracts, will nonetheless be affected in a variety of ways. The scale of the impact will depend upon whether Ellesmere Port is set up as a new Vectra flex plant.[55] The situation is complicated by the likelihood of diminishing Vectra production through 2001 and the poor prospects for future Frontera volume production. Some companies, including one major local supplier we spoke to at Luton, are already contemplating redundancies in the near future. Smaller second or third tier companies may only become aware of the impact when the orders from first tier suppliers dry up.[56]

44. It is of course difficult to put figures on the impact. Mr Reilly told us in oral evidence that the company's best immediate estimate was of between 700 and 1,290 job losses dependent on the outcome of the decision on where to locate the flex plant.[57] The Luton Vauxhall Partnership suggested that 1200/1400 jobs were at risk and that in the local area "some 600/700 jobs are being lost in components suppliers like BTR Sealants and Trico".[58] They are working to establish a clearer picture.[59] The Partnership also told us that Vauxhall had already "cancelled around 600 purchase orders for the Epsilon which they acknowledge will affect 800/1000 people".[60] This would seem to refer to contracts for alteration of the plant under Project Enable. Vauxhall told us that their Purchasing Department was working closely with others to find " offsetting opportunities to mitigate the impact on suppliers".[61]


  45. The principal reason adduced by Vauxhall for the December 2000 decision was the declining volume of sales throughout Europe in the segment of the vehicle market, where the Vectra competes with, among others, the Ford Mondeo, the Renault Laguna and the Nissan Primera. Mr Reilly told us that overall sales in that segment had fallen from 22% to 17% of the total car market over the past four years. Customers preferred either smaller cars or people movers.[62] The rate of decline in the UK market in that segment had been similar to the European trend, from 25% to 20%.[63] It was likely to continue to fall. The Vectra is said to have lost "a little" of its share of that declining market, in the face of the entry into the market of premium manufacturers such as Mercedes and BMW, but to have "done quite well".[64] Figures informally reported to us of Vectra exports from Luton and Vectra imports into the UK suggested that Vectra sales had fallen more in Germany and elsewhere on the Continent than in the UK.

46. This erosion in the market for the current Vectra model evidently led GME to revise its sales forecasts and production schedule for the planned successor to the Vectra, the Epsilon. It evidently concluded that it needed only one and a half new Vectra plants, not two as planned in 1998. The unions suggest that the UK is paying the price for poor sales prospects in Europe. Luton is in effect paying the price of GME's pessimistic view of the sales prospects on the continent of the new Opel Vectra.

47. The weakness of the euro was not cited by GM as a reason for their decision. In January 2001 Mr Reilly told us that if the Epsilon had come to Luton the exchange rate would have caused a problem for its profitablility, but that it had not been a "significant factor" in the decision.[65] GM have of course been affected by the sterling: euro rate, having taken a planning assumption of a 2.70 DM:sterling rate for planning purposes. We heard allegations that Vauxhall had been penalised by GM internal pricing policies, for example on the transfer price charged for the engines which come from Kaiserslautern in Germany. Mr Reilly assured us that there was no basis for this, citing the vigilance of tax authorities in policing internal transfer pricing of this sort.[66] In broad terms, it would seem that the weakness of the euro against sterling played no significant role in this decision.

48. The decision to reduce GME capacity taken in December 2000 is believed by a number of those we have spoken to have been perverse and to have been taken under pressure from GM in Detroit. It is suggested that the December decisions were part of an attempt to rescue the value of GM shares, by demonstrating the same determination to reduce "overcapacity" shown by Ford earlier in the year when it had announced the end of car production at Dagenham. The General Secretary of the TGWU indeed asked us to question GM's Chief Executive.[67] Mr Reilly assured us that the decision was taken in Europe and "ratified" in Detroit.[68] Wherever and by whoever, we remain at a loss to understand what prompted the sudden decision. We are aware of no "dramatic market change" as referred to in oral evidence by Mr Reilly.[69]

49. We can only conclude that General Motors were panicked into taking out capacity from their European operations in the face of poor trading results, and in the absence of any more considered long term strategy. That is of course their prerogative. This sacrifice of a car plant by a multinational intent on improving its short term profitability does plainly raise the question of to whom the directors of public companies such as General Motors should owe their duties. The DTI is engaged in a review of company law, and the question of duties owed to and by stakeholders, including employees and customers, has been extensively discussed. The lessons of this decision, and of Ford's very similar decision, must be fed into the company law review process, to see how changes in the legal duties of directors might have lead to a different outcome.

Why Luton?

  50. The decision to end car production at Luton was not made because of any perceived inefficiencies or failings of the Luton plant. Mr Reilly told us in January "the plant has performed very well over the last two years...the workforce, frankly, I do not think could have done anything more to make the decision different ....".[70] He assured us that relative productivity had played no part in the decision, and agreed that even if Luton had been the Group's most efficient and profitable plant it would not have helped.[71]

51. We have been quoted various figures on the relative productivity of Luton. There are doubts about their accuracy. The figures published in the trade press apparently include only those directly employed, thus making those plants who have outsourced extensively seem more productive than they really are. We assume that GME have a rather more sophisticated way of measuring productivity and efficiency, for purposes of internal management audit. There must, for example, be ways of comparing Luton with the other principal Vectra plant at Rüsselsheim, which produced broadly the same numbers of Vectras in 1999 as Luton. The general consensus seems to be that, once currency issues are stripped out, and taking account of GM transfer pricing, Luton is at least as efficient and productive as comparable GM plants.[72]

52. We sought to discover if Luton was a profitable operation for GM. We were told that Vauxhall as a whole was a profit centre, while Luton was a cost centre, so that it was not possible to say if Luton was profitable or not.[73] We appreciate that it is difficult to separate out profit centres down to individual plant level. It does however seem to us an anomaly that, in the absence of such simple information being available to management, unprofitable plants may be retained at the expense of profitable plants.

53. The obvious alternative might have been to remove the new Vectra from Russelsheim, and leave Luton as the principal new Vectra plant. Many factors militated against such a course of action. Labour laws apart, the effective ending of vehicle assembly at GM's largest German plant and the centre of its car engineering and design operations would have been a blow to GM's image in its principal market which would have been insupportable. Evidence to us from Mr Reilly suggested that it would have been impossible to move the tools going into Russelsheim to a potential flex plant because they were specific for German "notch back" and estate Vectra and Omega production.[74] Closure would thus have led to a significant waste of money spent on retooling. Luton was the plant producing the wrong model at the wrong time. It was the only way General Motors Europe could take out a significant amount of capacity in the short-term.

54. The allegation has again been made that the UK's labour laws have allowed a multinational company to embark on large-scale cuts without prior consultation with the workforce.[75] The leaking of the announcement on 12 December 2000 so that the first that most employees heard of it was on the local radio station, added insult to injury.[76] As the Secretary of State said —

    "That is no way, at the beginning of the 21st century and in a spirit of partnership in the workplace, to treat dedicated and hard-working employees".[77]

Mr Reilly denied that labour laws had been a consideration, citing the company's willingness to make fresh investments in the UK.[78] That is of course not a rebuttal of the thesis. We can only speculate whether General Motors might have come to a different decision if they had been advised that the breach of the 1998 Agreement could lead to vast sums in compensation, or if they were obliged to pay out large sums of social finance if they closed Luton, as they would in similar circumstances in Germany.

36  Q 319 Back

37  Qq 302ff Back

38  Ev, p 137  Back

39  Q 134 Back

40  Q 318 Back

41  Qq 410-11 Back

42  HC Deb, 13 December 00, col 651 Back

43  Qq 408-9; Ev, p 138, A6 Back

44  Q 409 Back

45  Q 368 Back

46  HC Deb, 13 December 2000, col 650 Back

47  GM Europe Press Release, 12 December 2000 Back

48  Q 364 Back

49  Ev, p 138, A5 Back

50  Q 253 Back

51  Q 371 Back

52  Q351 Back

53  Qq 350ff Back

54  Q 373 Back

55  Qq 323, 347 Back

56  Q 421 Back

57  Q 323 Back

58  Ev, p 126 Back

59  Q 420 Back

60  Ev, p 126 Back

61  Ev, p 137, A3 Back

62  Qq 245, 288 Back

63  Q 390 Back

64  Qq 245-6 Back

65  Qq 261-2 Back

66  Qq 257-8 Back

67  Ev, p 133 Back

68  Q 298 Back

69  Q 264 Back

70  Qq 263-4 Back

71  Q 317 Back

72  Eg Qq 83, 139 Back

73  Qq 310ff Back

74  Qq 326, 328 Back

75  Q 386 Back

76  Qq 382, 386, 399 Back

77  HC Deb, 13 December 2000, col 645: also ibid, 18 January 2001, col 499 Back

78  Qq 292ff Back

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